This comprehensive set of reforms means critical savings for state and local governments and real property tax relief for New Jerseyans.
- $79 Billion in State Contribution Savings: Over the next 30 years, the state pension contribution will be $148 billion, a projected savings of nearly $80 billion. Without reform, the state is projected to contribute $227 billion over the same period.
- $43 Billion in Local Government Contribution Savings: Over the next 30 years, local government pension contributions will be $70 billion, a projected savings of nearly $43 billion. Without reform, local governments are projected to contribute $113 billion over the same period.
Changes for All New Public Employee Retirement System (PERS) and Teachers Pension and Annuity Fund (TPAF) Employees:
- Updating the Formula for Retirement Eligibility:
- Establishing the normal and early retirement age at 65 years.
- Adjusting the early retirement penalty to 3 percent for each year.
- Increasing eligibility for early retirement to 30 years of service.
Changes for All New Police and Fire Retirement System (PFRS) Employees:
- Updating the Formula for “Special Retirement” Eligibility:
- Changes eligibility for special retirement from 65% with 25 years of service to 65% with 30 years and 60% with 25 years.
Changes for All Active Employees (Judicial Retirement System (JRS), PERS, TPAF, PFRS and SPRS):
- Employee Contribution Rate:
Current Reform Legislation:
PERS/TPAF 5.5% 6.5% (+1 additional point phased-in over 7 years to a 7.5% total)
PFRS 8.5% 10.0%
SPRS 7.5% 9.0%
JRS 3.0% 12.0% (increase phased-in over 7 years)
Changes for All Current and Future Retirees:
- Eliminating Automatic Annual Payment Increases: Eliminates all statutory Cost of Living Adjustments (COLAs).
A New Paradigm for Pension Plan Design:
- The legislation creates a new Plan Design Committee for each pension plan. The Committees will have new authority to change important plan design features --- such as retirement ages, employee contribution levels, and future cost-of-living adjustments (COLA) --- within a financially prudent framework that mandates an ongoing, stable level of funding for each system.
- A “Target Fund Ratio” (TFR) will define the boards’ ability to make plan design changes. The TFR is a target ratio of a fund’s actuarial value of assets (AVA) to that fund’s actuarially determined liabilities. In general, only funds that are at or above the TFR will have flexibility to make plan design changes.
- A “Target Fund Ratio” (TFR) of 75% is established as of the legislation’s effective date, increasing to 80% over seven years.
- Only funds meeting or exceeding TFR will be eligible to make plan design changes. Funds below TFR may not make changes.
- Funds above the TFR but below 80% (during the seven-year phase-in period) may make only those changes that do not reduce their funded ratio upon implementation or below the TFR at any time within the succeeding thirty years.
- Plans above 80% may not make changes that bring their funded ratio below 80% upon implementation or at any time within the succeeding thirty years.
- In general, pension funds are considered to be adequately funded if their AVA funded ratio is at or above 80% (the federal standard for “at-risk” funds).
- At the end of fiscal 2010, the State’s plans’ combined AVA funded level was just 56 percent.
- The State Investment Council will expand from 13 to 16 members and include more direct public employee stakeholder input.
Changes to Reflect More Realistic and Financially Sound Principles:
- Amortization methodology is changed from a percentage of pay schedule (which defers the retirement of any unfunded liability) to a level dollar amount each year in order to retire part of the system’s unfunded liability each year and earlier than the previous methodology.
- Amortization methodology is changed from a 30 year open period (which retires less of the unfunded liability each year and results in a lower funded ratio) to a maximum open period of 20 years (phased-in over 19 years).