Pension and Health Benefits Study Commission
NJAC is hoping that all twenty-one counties adopt its model resolution urging State leaders to protect local property taxpayers and governing bodies by preserving the structure and integrity of the fiscally solvent local pension systems. On February 24th, the New Jersey Pension and Health Benefits Study Commission released “A Roadmap to Resolution,” which proposes several recommendations to reform and stabilize the public employee pension and health benefits systems. In summary, the Commission recommends to:
- Freeze existing State and local pension plans to stop the accrual of future benefits under the plans, but maintain benefit credits earned through service prior to the freeze.
- Create new “cash balance” retirement plans to provide future retirement benefits based on an employee’s salary and interest credits.
- Align State and local public employee health benefits coverage with high-quality private sector coverage.
- Adopt a unified State/local approach to benefits funding that would permit the use of benefit savings at the local level to help fund the State level pension gap in a manner that is cost-neutral to local government.
- Establish an adequate, sustainable, and certain funding mechanism for pension benefits by a constitutional amendment.
NJAC is primarily concerned with the Commission’s recommendation to adopt a unified State/local approach to benefits funding as the local Public Employees Retirement System (PERS) and the local Police and Fire Retirement System (PFRS) are actuarially sound as counties and municipalities have made full employer contributions as required under the law for over a decade. In fact, the local Public Employees Retirement System (PERS) is currently funded at 73.9% and the local Police and Fire Retirement System (PFRS) is currently funded at 76.9% according to the latest valuation reports. Moreover, the local pension systems are well funded and solvent. Based again on the latest valuation reports, the local pension systems hold combined actuarial valued assets of approximately $42.0 billion with estimated retirement allowances due of $3.0 billion.
Although NJAC recognizes that the State must take meaningful steps to make the State government funded pension systems more affordable for taxpayers and sustainable for members, NJAC objects to any initiative that would affect, alter, or integrate the local pension systems as counties and municipalities have met their obligations as employers and the local pension systems are fiscally sound as a result. We’ll make sure to keep you posted of any new developments as the report of the Actuary for PFRS, PERS, SPRS, and TRAF will be presented at a special meeting on April 22nd. This meeting will begin at 9:00 a.m. at the Division of Pension and Benefits, 50 West State Street, 1st Floor Board Room, Trenton, New Jersey.
Cadillac Tax on Health Benefits
At the March 23rd meeting of the Southern New Jersey Freeholders Association in Salem County, freeholders and county leaders discussed the looming “Cadillac Tax” for high-cost employer-sponsored health benefits coverage set to begin 2018. Pursuant to the white paper published by the National Association of Counties entitled “Excise Tax on High Cost Employer-Sponsored Health Coverage: What Counties Need to Know,” the base thresholds for 2018 are $10,200 for individual coverage and $27,500 for all other coverage tiers, with higher thresholds available for certain participants. NACo recommends that Plan sponsors take steps now to understand when their plan may hit the excise tax thresholds and how to minimize the tax’s impact.
In general, all group health plans are subject to the tax, including plans established and maintained by local governments or their instrumentalities. Both fully insured and self-insured plans are subject to the tax, as are retiree health plans. The value of account-based plans, such as Health Reimbursement Arrangement (HRA) and Health Flexible Spending Arrangements (health FSA) will be included in the plan’s value. For Health Savings Accounts (HSA), the employer contributions appear to be included in the calculation. Dental and vision coverage that is provided under a separate insurance policy is not
The responsibility for paying the excise tax rests with the plan’s coverage provider. For insured coverage, the coverage provider is the insurer or HMO. For self-insured coverage, the coverage provider is the “person that administers the plan benefits.” The total cost of coverage under the plan will be generally determined under rules similar to calculating COBRA premiums. If there are different administrators, the law requires the employer to combine the cost of different benefits, calculate the amount of the excess benefit, and determine the pro rata share of the excess attributable to each type of benefit. The employer must then notify each administrator and the Treasury Department of its applicable share of the excess benefit. Penalties will be assessed on employers who do not perform these calculations. As noted above, the two thresholds for 2018 are set in the law: $10,200 for self-only coverage and $27,500 for all other coverage tiers. There is no variation for high-cost regions of the country. The thresholds may be increased in several ways:
- Medical Inflation: An increase is triggered if medical inflation in the federal employees health benefits plan exceeds expectations.
- Age and Gender: This would apply if the age and gender mix of the plan participants differs from certain national norms.
- High-Risk Professions: The threshold amounts are increased if the majority of participants are engaged in a high-risk profession or are employed to repair or install electrical or telecommunications lines. The list of employees in high-risk professions includes law enforcement officers, fire protection activities, out-of-hospital emergency medical care (including emergency medical technicians, paramedics and first responders). This includes people who retired from a high-risk profession if they were engaged in a high-risk profession for at least 20 years.
- Qualified Retirees: The threshold amounts are increased for a person who is receiving coverage as a retiree, age 55 or older, and not entitled to benefits or eligible for enrollment under Medicare.
For the last two adjustments noted above, the self-only threshold is increased by $1,650 and the threshold for all other coverage tiers is increased by $3,450. Starting in 2019, the thresholds and the adjustment amounts will increase based on general inflation. In general, this means that plans will pay higher taxes, and could even pay the tax sooner than if the thresholds increased with medical inflation. With medical trends running at about three times the rate of general inflation, the gap between actual plan costs and the general-inflation-adjusted thresholds will keep getting bigger, triggering even higher taxes over time than if the thresholds increased at a more realistic rate.
Plans that offer retiree health benefits must project the cost of the benefit to determine when a cost threshold is met, triggering the excise tax. Plans must recognize the excise tax in their retiree health valuations if the amount is deemed significant. Plan sponsors should take action now to evaluate when and under what circumstances their plans could be expected to reach the excise tax thresholds. Plan sponsors should determine in which year the plan is likely to exceed the thresholds and by how much. A plan sponsor that expects to exceed the thresholds in 2018 or a few years beyond 2018 may want to begin considering plan design changes that would slowly bring down the total cost of the coverage.
Possible options include: selecting cost-effective provider networks, which might include narrow networks; stepping up efforts to promote wellness and prevention to improve the health status and future claim-cost risk of the workforce; self-funding to avoid certain taxes, fees and risk charges; resetting eligibility rules, and migrating from fee-for-service provider reimbursement. The course of action that will make the most sense will vary considerably from plan to plan. Given the extended time frames necessary to make plan and program changes, plan sponsors should begin charting the course now so that necessary changes can be rolled out gradually and communicated clearly to employees. Please visit www.naco.org for additional details.
Electronic Fund Transfers
As a means to modernize the manner in which local governing bodies must pay their bills, NJAC strongly supports Assembly, No. 2925 (Lagana D-38/O’Scanlon R-13), which would authorize local governing bodies to use electronic fund transfer technologies as the standardized form of payment to individuals and businesses.
In summary, this legislation would authorize local governments to use electronic fund technologies such as wire transfers, prepaid debit cards, and Automated Clearing House (ACH) payments. ACH or Electronic Funds Transfer (EFT) is an electronic network for financial transactions that processes large volumes of credit and debit transactions. ACH credit transfers include direct deposit, payroll, and vendor payments. ACH direct debit transfers include consumer payments on insurance premiums, mortgage loans, and other similar types of bills. The benefits of using ACH includes: reduced printing and processing costs, enhanced security, increased productivity, and improved cash management. Currently, local governments typically make payments by paper check, prepaid debit cards, electronic direct deposits, or any combination thereof.
A-2925 passed the General Assembly by a vote of 71-5 on December 15th; and, the Senate companion version, Senate, No. 1033 (Weinberg D-38) is currently in the Senate Budget and Appropriations Committee awaiting consideration. NJAC plans on meeting with Senator Weinberg before the Legislature returns from the budget break in May to discuss making the Senate version identical to its counterpart in the General Assembly, and having the Senate Budget and Appropriations Committee consider the measure before the Legislature breaks for summer recess and the General Election in November.
Open Space Preservation
On March 9th, the Senate Environment and Energy Committee favorably reported Senate, No 2769 (Smith D-17/Bateman D-16), which would implement, for State fiscal year 2016 through State fiscal year 2019, the constitutional dedication of Corporation Business Tax (CBT) revenues for open space, farmland, and historic preservation.
With respect to open space, farmland, and historic preservation for fiscal year 2016 through fiscal year 2019, of the four percent CBT dedication, the State Constitution dedicates annually 71% for: (1) providing funding, including loans or grants, for the preservation, including acquisition, development, and stewardship, of lands for recreation and conservation purposes, including lands that protect water supplies and lands that have incurred flood or storm damage or are likely to do so, or that may buffer or protect other properties from flood or storm damage (i.e., Green Acres and Blue Acres); (2) providing funding, including loans or grants, for the preservation and stewardship of land for agricultural or horticultural use and production (i.e., farmland preservation); (3) providing funding, including loans or grants, for historic preservation; and (4) paying administrative costs associated with each of those efforts. Commencing July 1, 2019 (i.e., for State fiscal year 2020 and thereafter), of the six percent of the CBT revenue to be dedicated annually for certain environmental programs, 78 percent would be dedicated for the above-listed four purposes.
The Constitution also dedicates money received from leases and conveyances of State open space lands. Under this bill, each State park, forest, or wildlife management area would receive an amount equal to the amount of revenue annually derived from leases or conveyances of lands at that State park, forest, or wildlife management area, as appropriate, to be used for recreation and conservation purposes at that State park, forest, or wildlife management area. For fiscal year 2016 through and including fiscal year 2019, the above-described CBT dedicated revenues would be allocated as follows: (1) 64 percent would be used for acquiring and developing lands for public recreation and conservation purposes, including lands that protect water supplies, under the Green Acres program; (2) 4 percent would be used for the Blue Acres program; (3) 29 percent would be used for farmland preservation purposes; and (4) 3 percent would be used for historic preservation purposes.
A maximum of 5 percent each year would be permitted to be used for administrative costs associated with implementing each of these four programs. Of the monies allocated for the Green Acres program and the farmland preservation program, the bill also allocates funding for stewardship activities. The bill defines “stewardship activity” to mean “an activity, which is beyond routine operations and maintenance, undertaken by the State, a local government unit, or a qualifying tax exempt nonprofit organization to repair, restore, or improve lands acquired or developed for recreation and conservation purposes or acquired for farmland preservation purposes for the purpose of enhancing or protecting those lands for recreation and conservation purposes or farmland preservation purposes.”
Of the 64 percent allocated each year for the Green Acres program: 55 percent would be used for State open space acquisition and development projects; 38 percent would be used for grants and loans to fund local government open space acquisition and development projects; and 7 percent would be used for grants to fund open space acquisition and development projects undertaken by qualifying tax exempt nonprofit organizations. Of the funding for State open space acquisition and development projects: 40 percent would be used for acquisition projects and 60 percent would be used for development projects. Further, of the funding for State open space development projects, 22 percent would be used for stewardship activities undertaken on lands administered by the Division of Fish and Wildlife and 22 percent would be used for stewardship activities undertaken on lands administered by the Division of Parks and Forestry. Of the funding allocated for local open space acquisition and development projects, 2 percent would be used to fund stewardship activities. Of the allocated funding for open space acquisition and development projects by qualifying tax exempt nonprofit organizations, 11 percent would be used to fund stewardship activities.
This bill would continue the State’s existing open space, farmland, and historic preservation programs. It is based on the provisions of the “Garden State Preservation Trust Act” (GSPTA), as well as the “Green Acres, Water Supply and Floodplain Protection, and Farmland and Historic Preservation Bond Act of 2009” (P.L.2009, c.117) and the “Green Acres, Farmland, Blue Acres, and Historic Preservation Bond Act of 2007” (P.L.2007, c.119) and, generally, defines relevant terms in the same manner as the GSPTA and continues the respective priority systems, ranking criteria, and funding policies set forth in the GSPTA, except as otherwise specified in the bill.
For the Green Acres Program, the bill would provide that an urban aid municipality may receive a grant by the State for the acquisition or development of lands for recreation and conservation purposes for 75 percent of the cost of acquisition or development of the lands by the local government unit, and this amount may be increased by the DEP up to 100 percent of the allowable funding cap upon a demonstration of special need or exceptional circumstances. Under current law, an urban aid municipality may receive a grant for 50 percent of the cost of the project, with the possibility of this amount being increased to a maximum of 75 percent (up to the allowable cap). In addition, the bill provides that a local government unit or a qualifying tax exempt nonprofit organization may use a grant or loan for recreation and conservation purposes for the construction of a community garden.
For the historic preservation program, the bill would provide that historic preservation funds may also be used for emergency intervention and the acquisition of historic property easements. The bill defines “emergency intervention” to mean an immediate assessment or capital improvement necessary to protect or stabilize the structural integrity of a historic property. Lastly, the measure would provide that the DEP, the State Agriculture Development Committee, and the New Jersey Historic Trust would each, at least once every two years, submit to the Garden State Preservation Trust projects recommended to receive funding under the bill. The Garden State Preservation Trust would then submit the list of projects to the Legislature for funding in the form of appropriation bills. Despite this very lengthy summary that has blinded me in the left eye, NJAC does not have a position on the measure at this time. S-2769 is current in the Senate Budget and Appropriations Committee awaiting consideration; and Assembly, No. 4203 (McKeon D-27/Spencer D-29) is currently in the Assembly Environment and Solid Waste Committee awaiting consideration.
NJAC Annual Celebration of County Government
We’re expecting well over 500 community and business leaders and 70 vendors from across the State to attend NJAC’s 65th annual celebration of county government scheduled to take place from May 6th through May 8th at Caesar’s in Atlantic City. This year’s outstanding event includes the nation’s only county vocational-technical school cook-off challenge, accredited professional development workshops, county service awards, a reporters roundtable, outstanding networking opportunities, strong representation from all 21 counties, and Congressman Tom MacArthur as the keynote speaker. If you haven’t done so already, please make sure to visit our website at www.njac.org for additional details about this highly-anticipated event.
State House Trivia
Did you know that the federal tax code has grown to over 7000 pages and that Americans spend an estimated 76 billion hours each year preparing taxes?
“The income tax has made more liars out of the American people than golf.” Will Rogers.