CCSNJ Assembly Testimony in Support of Pension and Benefit Reforms
Friday, March 19, 2010

Good morning, Chairwoman Pou and members of the Assembly Appropriations Committee. My name is Christina M. Genovese and I am the Director, Government Relations for the Chamber of Commerce Southern New Jersey. It is my pleasure to testify today in support of the four bill reform package that makes changes to state employees’ benefits.

Over the years, our Chamber has been a leader in bringing many of these issues to the forefront. We are proud to have been a strong and consistent voice in the need for state government to bring spiraling employee related costs under control. The reforms contained in S-2 (Scutari, O’Toole) / A-2461 (Oliver, DeCroce), S-3 (Doherty/Whelan) / A-2460 (Oliver, DeCroce), S-4 (O’Toole/Buono) / A-2459 (Oliver, DeCroce), and SCR-1 (Sweeney/T. Kean) / ACR-115 (Oliver, DeCroce)make important and necessary changes that will halt the rapid growth in the cost of benefits and ultimately save taxpayer dollars. We thank Senate President Sweeney and Assembly Speaker Oliver for their leadership in making this controversial issue a priority and having the courage to support meaningful reforms.

Over the past several years, several bodies – including the Chamber – have studied public employee benefits in an effort to determine if cost control options were necessary. The results of the Chamber’s Board Council on Responsible Government Spending Report – Phase II, the 2006 Special Joint Legislative Committee on Public Employee Benefits, Governor Codey’s 2005 Benefits Review Task Force (Murphy Commission), and the Mercer Consulting Study all concluded that substantial changes need to be made to the current system.

In 2008, the Chamber supported a first wave of reform bills stemming from these recommendations and was disappointed to see most initiatives watered-down. This four bill package being considered today plugs several of the holes from the 2008 reforms and, we believe, will result in meaningful, cost-saving changes to our state employee pension and benefit system.

As you are acutely aware, the costs associated with providing pension and health benefits to public employees in our State have escalated tremendously. According to testimony provided by Mr. Fred Beaver to the Joint Legislative Committee on Public Employee Benefits in August 2006, the growth in pension liabilities is a result of: limited or no employer contributions, benefit enhancements, increased benefit payouts (at that time, $5 billion per year), retirees living longer and therefore, collecting benefits longer, and active employees with higher salaries and more service credits. Clearly, all of these factors make maintaining the current system in today’s economic climate no longer an option.

The FY2010 budget deficit currently facing the state and the looming $10 billion deficit approximated for the start of FY 2011 is more evidence of this point. Business and property tax payers simply cannot sustain continuing to fund the yearly increases needed to fund the state government’s pension systems. This is not the fault of the employees in the system; it is simply a reflection of today’s economic climate and the fact that we can no longer sustain the level of benefits that have been in existence for decades.

S-2 (Scutari, O’Toole) / A-2461 (Oliver, DeCroce)makes several changes to the state pension system by: limiting eligibility into PERS/TPAF to full time employees; enrolling part-time employees, new elected officials and new full-time appointed employees in the Defined Contribution Retirement Program (DCRP); basing membership eligibility into PERS/TPAF on hours worked weekly; raising the compensation minimum to $5,000 (from $1,500) for enrollment in DCRP; rolling back n/55 to n/60 (which will negate the 9% pension boost given in 2001); capping pensionable salary at the Social Security maximum contribution limit; changing the pension benefit calculation to the highest five years of service from the highest three years; and requiring designation of one position for enrollment in the pension system, amongst other actions.

The comprehensive measures outlined in S-2 (Scutari, O’Toole) / A-2461 (Oliver, DeCroce)mirror many of the recommendations made by the Chamber in our Board Council Report and encompass almost all of the pension reform recommendations made by the Joint Legislative Session on Public Employee Benefits. Many of these initiatives are reflective of practices of the private sector and Senators Scutari and O’Toole, Speaker Oliver, and Minority Leader DeCroce should be commended for their leadership in bringing these sets of reforms to the forefront.

However, the Chamber respectfully recommends that this Committee consider strengthening S-2 (Scutari, O’Toole) / A-2461 (Oliver, DeCroce), by making the proposals designating one position per employee for PERS/TPAF enrollment and changing the pension benefit calculation to the highest five years of service from the highest three years a requirement for current employees, as well as prospective employees.

The second bill introduced in the reform package, S-3 (Doherty/Whelan) / A-2460 (Oliver, DeCroce), would make several changes to employee health benefits by: requiring state employees, local government employees and employees of school districts to pay 1.5% of their base salary towards health benefits (after the expiration of their current contract); requiring these employees to pay 1.5% of their base pension towards health benefits when they retire; limiting enrollment of state employees in SHBP to those who work a minimum of 35 hours per week; limiting enrollment of local employees and employees of school districts to those who work a minimum of 32 hours per week; allowing local employers to prospectively provide monetary incentives to waive SHBP coverage and capping the incentive amount at $5,000; and prohibiting multiple coverage in SHBP and SEHBP as an active employee, retiree or dependent, amongst other provisions.

Health care costs represent a growing expense to all employers. These series of reforms will save significant dollars and provide a more balanced burden between the employer and the employee by requiring employees to contribute to their health care costs and making entry into the state health benefits system more restrictive. Senators Doherty and Whelan, Speaker Oliver, and Minority Leader DeCroce should be commended for introducing these meaningful reforms.

The Chamber respectfully recommends that this Committee consider strengthening S-3 (Doherty/Whelan) / A-2460 (Oliver, DeCroce), by requiring a 10% contribution on the total health care premium cost, as opposed to the 1.5% contribution of base salary towards total health care benefits currently proposed in this bill. According to the Chamber’s research on this issue, requiring employees to pay a percentage of health care premiums is in line with common private sector practice. In fact, when the Chamber conducted research on this topic in 2006, 9% was the minimum employee contribution rate among surveyed companies – highest being 39% - for single coverage. Similarly, we suggest requiring a 10% contribution toward health care premiums for retirees.

S-4 (O’Toole/Buono) / A-2459 (Oliver, DeCroce) would implement several other recommendations made by the Chamber, such as: capping the payout amount of unused sick time for local and school district employees at $15,000; and limiting accumulation of unused vacation time. These reforms simply make sense and will undoubtedly save taxpayer dollars.

Lastly, SCR-1 (Sweeney/T. Kean) / ACR-115 (Oliver, DeCroce) is a constitutional amendment, which would phase-in a requirement that the State pay the full amount of its pension obligation each year. This measure will no longer allow the State to defer pension payments during difficult budget years.

We commend the sponsors of these bills, urge you to support these much-needed reforms, and urge you to consider the recommendations we put forth today. We thank you for your commitment to the taxpayers of New Jersey.