ASSEMBLY, No. 1493

STATE OF NEW JERSEY

INTRODUCED FEBRUARY 5, 1996

By Assemblywoman WRIGHT

An Act concerning the calculation of pension benefits in the Public Employees' Retirement System and amending and supplementing P.L.1954, c.84.

    Be It Enacted by the Senate and General Assembly of the State of New Jersey:

    1. (New section) The Legislature finds and determines that:

    a. The practice whereby some members of the Public Employees' Retirement System are able to retire with pension benefits which are disproportionately higher than the employee and employer contributions paid into the system is unfair to all other members and costly for all public employers;

    b. This practice is possible because the retirement system does not distinguish between part-time and full-time service while length of service is a major factor in determining the amount of a pension benefit;

    c. An equitable and financially sound pension policy should distinguish between part-time and full-time service without reducing the pension benefits of either career part-time employees or career full-time employees; and

    d. It is appropriate to adopt a pension calculation formula which, by distinguishing between part-time and full-time service, will provide equity for all members of the retirement system and eliminate the financial burden on public employers.

    2. (New section) Notwithstanding any other law to the contrary:

    a. A full-time account for the crediting of full-time service shall be established for each member of the retirement system who renders full-time service, and a part-time account for the crediting of part-time service shall be established for each member of the retirement system who renders part-time service. For purposes of establishing service credit in the retirement system, (1) the months and years of credit for part-time service credited to a member's part-time account shall reflect the entire months and years during which that service was rendered and shall not be calculated as a proportion of full-time service; and (2) part-time service may be combined with full-time service, except that not more than one year shall be credited for any such combination of full-time and part-time service rendered in one calendar year other than in the calculation of the retirement allowance under subsections b. and c. of this section.

    b. (1) In calculating any retirement allowance payable under section 38, subsection b. of section 41, sections 45 and 48, and subsection d. of section 61 of P.L.1954, c.84 (C.43:15A-38, 41, 45, 48, 61) and section 4 of P.L.1955, c.257 (C.43:15A-100), a member who has established both part-time service credit and full-time service credit shall receive a total retirement allowance consisting of the retirement allowance determined by the part-time service credit and final compensation received during the part-time service plus the retirement allowance determined by the full-time service credit and final compensation received during the full-time service, except that, in the case of retirement under section 45, the minimum of 40% of final compensation shall be based on the highest compensation for which contributions were made into the part-time account, the full-time account, or, if there was concurrent service, both in combination. In calculating any retirement allowance payable under section 46 of P.L.1954, c.84 (C.43:15A-46), a member who has established both part-time service credit and full-time service credit shall receive a total retirement allowance of 2/3 of the member's actual annual compensation for which contributions were being made at the time of the occurrence of the accident into the part-time account, the full-time account, or both, as the case may be.

    (2) The term "final compensation," as defined in subsection h. of section 6 of P.L.1954, c.84 (C.43:15A-6) and used in this subsection, shall be applied to the relevant three years of creditable service in the part-time account and to the relevant three years of creditable service in the full-time account.

    (3) In calculating the death benefit for a retirant whose retirement allowance is calculated under this subsection, the compensation received by the member in the last year of creditable service prior to the member's retirement upon which contributions were made into the part-time account, the full-time account, or both, as the case may be, shall be used.

    c. In calculating any retirement allowance payable under subsections a., b., and c. of section 61 of P.L.1954, c.84 (C.43:15A-61), a member who has established both part-time service credit and full-time service credit shall receive a total retirement allowance consisting of the retirement allowance determined by the years of part-time service divided by the total years of service and multiplied by 1/2 of the compensation received during the last year of part-time service plus the retirement allowance determined by the years of full-time service divided by the total years of service and multiplied by 1/2 of the compensation received during the last year of full-time service.

    In calculating the death benefit for a retirant whose retirement allowance is calculated under this subsection, the compensation received by the member in the last year of creditable service prior to the member's retirement upon which contributions were made into the part-time account, the full-time account, or both, as the case may be, shall be used.

    d. In calculating the death benefit under subsection c. of section 41 or subsection b. or subsection e. of section 49 of P.L.1954, c.84 (C.43:15A-41 and 49) for a member who has established both part-time service credit and full-time service credit, the compensation received by the member during the last year of creditable service prior to the member's death upon which contributions were made into the part-time account, the full-time account, or both, as the case may be, shall be used.

    3. (New section) All previous service credited to a member on the effective date of this act shall be credited as full-time service in the member's full-time account.

    4. (New section) The employer of a member of the retirement system shall, upon request, provide to the Division of Pensions and Benefits any information and records required to substantiate the classification of a member's service as part-time or full-time.

    5. Section 6 of P.L.1954, c.84 (C.43:15A-6) is amended to read as follows:

    6. As used in this act:

    a. "Accumulated deductions" means the sum of all the amounts, deducted from the compensation of a member or contributed by or on behalf of the member, standing to the credit of the member's individual account in the annuity savings fund.

    b. "Annuity" means payments for life derived from the accumulated deductions of a member as provided in this act.

    c. "Annuity reserve" means the present value of all payments to be made on account of any annuity or benefit in lieu of an annuity, granted under the provisions of this act, computed on the basis of such mortality tables recommended by the actuary as the board of trustees adopts, with regular interest.

    d. "Beneficiary" means any person receiving a retirement allowance or other benefit as provided in this act.

    e. "Child" means a deceased member's unmarried child either (1) under the age of 18 or (2) of any age who, at the time of the member's death, is disabled because of mental retardation or physical incapacity, is unable to do any substantial, gainful work because of the impairment and the impairment has lasted or can be expected to last for a continuous period of not less than 12 months, as affirmed by the medical board.

    f. "Parent" shall mean the parent of a member who was receiving at least 1/2 of the parent's support from the member in the 12-month period immediately preceding the member's death or the accident which was the direct cause of the member's death. The dependency of such a parent will be considered terminated by marriage of the parent subsequent to the death of the member.

    g. "Widower" means the man to whom a member was married at least five years before the date of her death and to whom she continued to be married until the date of her death and who was receiving at least 1/2 of his support from the member in the 12-month period immediately preceding the member's death or the accident which was the direct cause of the member's death. The dependency of such a widower will be considered terminated by marriage of the widower subsequent to the death of the member. In the event of the payment of an accidental death benefit, the five-year qualification shall be waived.

     h. "Final compensation" means the average annual compensation for which contributions are made for the three years of creditable service in New Jersey immediately preceding the member's retirement or death, or it shall mean the average annual compensation for New Jersey service for which contributions are made during any three fiscal years of his or her membership providing the largest possible benefit to the member or the member's beneficiary.

    i. "Fiscal year" means any year commencing with July 1 and ending with June 30 next following.

    j. "Medical board" shall mean the board of physicians provided for in section 17 (C.43:15A-17).

    k. "Pension" means payments for life derived from appropriations made by the employer as provided in this act.

    l. "Pension reserve" means the present value of all payments to be made on account of any pension or benefit in lieu of a pension granted under the provisions of this act, computed on the basis of such mortality tables recommended by the actuary as the board of trustees adopts, with regular interest.

    m. "Public Employees' Retirement System of New Jersey," hereinafter referred to as the "retirement system" or "system," is the corporate name of the arrangement for the payment of retirement allowances and other benefits under the provisions of this act including the several funds placed under said system. By that name all of its business shall be transacted, its funds invested, warrants for money drawn, and payments made and all of its cash and securities and other property held.

    n. "Regular interest" shall mean interest as determined by the State Treasurer, after consultation with the Directors of the Divisions of Investment and Pensions, the board of trustees and the actuary. It shall bear a reasonable relationship to the percentage rate of earnings on investments based on the market value of the assets but shall not exceed the assumed percentage rate of increase applied to salaries plus 3%, provided however that the board of trustees shall not set the average percentage rate of increase applied to salaries below 6%.

    o. "Retirement allowance" means the pension plus the annuity.

    p. "Veteran" means any honorably discharged officer, soldier, sailor, airman, marine or nurse who served in any Army, Air Force or Navy of the Allies of the United States in World War I, between July 14, 1914, and November 11, 1918, or who served in any Army, Air Force or Navy of the Allies of the United States in World War II, between September 1, 1939, and September 2, 1945, and who was inducted into such service through voluntary enlistment, and was a citizen of the United States at the time of such enlistment, and who did not, during or by reason of such service, renounce or lose United States citizenship, and any officer, soldier, sailor, marine, airman, nurse or army field clerk, who has served in the active military or naval service of the United States and has or shall be discharged or released therefrom under conditions other than dishonorable, in any of the following wars, uprisings, insurrections, expeditions, or emergencies, and who has presented to the retirement system evidence of such record of service in form and content satisfactory to said retirement system:

    (1) The Indian wars and uprisings during any of the periods recognized by the War Department of the United States as periods of active hostility;

    (2) The Spanish-American War between April 20, 1898, and April 11, 1899;

    (3) The Philippine insurrections and expeditions during the periods recognized by the War Department of the United States as of active hostility from February 4, 1899, to the end of 1913;

    (4) The Peking relief expedition between June 20, 1900, and May 27, 1902;

    (5) The army of Cuban occupation between July 18, 1898, and May 20, 1902;

    (6) The army of Cuban pacification between October 6, 1906, and April 1, 1909;

    (7) The Mexican punitive expedition between March 14, 1916, and February 7, 1917;

    (8) The Mexican border patrol, having actually participated in engagements against Mexicans between April 12, 1911, and June 16, 1919;

    (9) World War I, between April 6, 1917, and November 11, 1918;

    (10) World War II, between September 16, 1940, and December 31, 1946, who shall have served at least 90 days in such active service, exclusive of any period of assignment (1) for a course of education or training under the Army Specialized Training Program or the Navy College Training Program which course was a continuation of a civilian course and was pursued to completion, or (2) as a cadet or midshipman at one of the service academies any part of which 90 days was served between said dates; provided, that any person receiving an actual service-incurred injury or disability shall be classed as a veteran whether or not that person has completed the 90-day service as herein provided;

    (11) Korean conflict on or after June 23, 1950, and on or prior to January 31, 1955, who shall have served at least 90 days in such active service, exclusive of any period of assignment (1) for a course of education or training under the Army Specialized Training Program or the Navy College Training Program which course was a continuation of a civilian course and was pursued to completion, or (2) as a cadet or midshipman at one of the service academies, any part of which 90 days was served between said dates; provided, that any person receiving an actual service-incurred injury or disability shall be classed as a veteran whether or not that person has completed the 90-day service as herein provided; and provided further, that any member classed as a veteran pursuant to this paragraph prior to August 1, 1966, shall continue to be classed as a veteran whether or not that person completed the 90-day service between said dates as herein provided;

    (12) Vietnam conflict on or after December 31, 1960, and on or prior to May 7, 1975, who shall have served at least 90 days in such active service, exclusive of any period of assignment (1) for a course of education or training under the Army Specialized Training Program or the Navy College Training Program which course was a continuation of a civilian course and was pursued to completion, or (2) as a cadet or midshipman at one of the service academies, any part of which 90 days was served between said dates; and exclusive of any service performed pursuant to the provisions of section 511(d) of Title 10, United States Code, pursuant to an enlistment in the Army National Guard or as a reserve for service in the Army Reserve, Naval Reserve, Air Force Reserve, Marine Corps Reserve, or Coast Guard Reserve; provided, that any person receiving an actual service-incurred injury or disability shall be classed as a veteran whether or not that person has completed the 90 days' service as herein provided;

    (13) Lebanon peacekeeping mission, on or after September 26, 1982, who has served in Lebanon or on board any ship actively engaged in patrolling the territorial waters of that nation for a period, continuous or in the aggregate, of at least 14 days commencing on or before the date of termination of that mission, as proclaimed by the President of the United States, Congress or the Governor, whichever date of termination is the latest, in such active service; provided, that any person receiving an actual service-incurred injury or disability shall be classed as a veteran whether or not that person has completed the 14 days' service as herein provided;

    (14) Grenada peacekeeping mission, on or after October 25, 1983, who has served in Grenada or on board any ship actively engaged in patrolling the territorial waters of that nation for a period, continuous or in the aggregate, of at least 14 days commencing on or before the date of termination of that mission, as proclaimed by the President of the United States, Congress or the Governor, whichever date of termination is the latest, in such active service; provided, that any person receiving an actual service-incurred injury or disability shall be classed as a veteran whether or not that person has completed the 14 days' service as herein provided;

    (15) Panama peacekeeping mission, on or after the date of inception of that mission, as proclaimed by the President of the United States, Congress or the Governor, whichever date of inception is earliest, who has served in Panama or on board any ship actively engaged in patrolling the territorial waters of that nation for a period, continuous or in the aggregate, of at least 14 days commencing on or before the date of termination of that mission, as proclaimed by the President of the United States, Congress or the Governor, whichever date of termination is the latest, in such active service; provided, that any person receiving an actual service-incurred injury or disability shall be classed as a veteran whether or not that person has completed the 14 days' service as herein provided;

    (16) Operation "Desert Shield/Desert Storm" mission in the Arabian peninsula and the Persian Gulf, on or after the date of inception of that operation, as proclaimed by the President of the United States, Congress or the Governor, whichever date of inception is earliest, who has served in the Arabian peninsula or on board any ship actively engaged in patrolling the Persian Gulf for a period, continuous or in the aggregate, of at least 14 days commencing on or before the date of termination of that mission, as proclaimed by the President of the United States, Congress or the Governor, whichever date of termination is the latest, in such active service; provided, that any person receiving an actual service-incurred injury or disability shall be classed as a veteran whether or not that person has completed the 14 days' service as herein provided.

    "Veteran" also means any honorably discharged member of the American Merchant Marine who served during World War II and is declared by the United States Department of Defense to be eligible for federal veterans' benefits.

    q. "Widow" means the woman to whom a member was married at least five years before the date of his death and to whom he continued to be married until the date of his death and who was receiving at least 1/2 of her support from the member in the 12-month period immediately preceding the member's death or the accident which was the direct cause of the member's death. The dependency of such a widow will be considered terminated by the marriage of the widow subsequent to the member's death. In the event of the payment of an accidental death benefit, the five-year qualification shall be waived.

    r. "Compensation" means the base or contractual salary, for services as an employee, which is in accordance with established salary policies of the member's employer for all employees in the same position but shall not include individual salary adjustments which are granted primarily in anticipation of the member's retirement or additional remuneration for performing temporary or extracurricular duties beyond the regular workday or the regular work year. It shall not include that portion of salary in any year of creditable service or fiscal year used for the calculation of the member's retirement allowance which exceeds by more than 10% (1) the salary in the immediately preceding year of creditable service or fiscal year, as the case may be, or (2) if the years of service or fiscal years that are used are sequential, the amount of salary used in the immediately preceding year for the purpose of calculating the member's retirement allowance. In cases where salary includes maintenance, the retirement system shall fix the value of that part of the salary not paid in money which shall be considered under this act.

(cf: P.L.1992, c.125, s.7)

    6. (New section ) The Division of Pensions and Benefits shall adopt rules and regulations pursuant to the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.), to define part-time and full-time service.

    7. Section 6 of this act shall take effect immediately, and the remainder of this act shall take effect on January 1, 1997 and shall apply to new members and to the future service of current members.

STATEMENT

    This bill curtails the ability of some members of the Public Employees' Retirement System (PERS) to qualify for retirement benefits which are disproportionate to the contributions paid into the retirement system with respect to the employee's service as a member.

    Under PERS, as under other State-administered retirement systems, the amount of a member's retirement allowance is generally based on (1) the member's length of service credited in the system, and (2) in the case of accidental disability and veteran's retirement, the member's annual compensation during the last year of credited service, or in the case of other types of retirement, the member's "final compensation" (i.e., the average annual compensation during the three highest-paid years of such service). The retirement system makes no distinction between part-time service and full-time service. Consequently, a member may render, and accumulate pension credit for, many years of service in a part-time position for which the compensation is commensurately modest, and yet, by assuming for a relatively short period a full-time position for which the compensation is accordingly much greater, qualify for a retirement allowance that is as large as it would have been if the member had been employed full-time for the entire duration of his public service.

    Under the provisions of the bill, separate accounts are to be established for the crediting of part-time service and full-time service. In calculating the amount of a retirement allowance which, under the general provisions of the PERS statute, is based on the number of years of service and final compensation, the member's total retirement allowance would consist of an allowance based upon creditable service and final compensation as a part-time employee plus an allowance based upon creditable service and final compensation as a full-time employee.

    The legislation would affect the determination of the amount of a member's retirement allowance, but not the member's qualification for that allowance. More particularly, in determining whether a member of the PERS shall have met the service requirement for deferred retirement (10 years), early retirement (25 years), or veteran's retirement (20 years), part-time service will continue to be equivalent to full-time service; that is, a year of part-time service will be equivalent to a year of full-time service, and part-time service may be combined with full-time service, except that not more than one year shall be credited for any such combination of full-time and part-time service rendered in one calendar year other than in the calculation of the retirement allowance.

    In the case of a member who has both part-time and full-time service credit and whose pension is based upon "final compensation", the member's total retirement allowance shall consist of a retirement allowance based on the part-time service credit and final compensation received during the period of part-time service plus the full-time service credit and final compensation received during the period of full-time service. In the case of a veteran member entitled to a pension based upon 1/2 of the compensation received in the last year of service, the total retirement allowance shall consist of a retirement allowance equal to the proportion of the member's total years of service which consisted of part-time service multiplied by 1/2 of the compensation received during the last year of such part-time service plus a retirement allowance equal to the proportion of the member's total years of service which consisted of full-time service multiplied by 1/2 of the compensation received during the last year of such full-time service.

    The bill's provisions for separating accounting for part-time and full-time credit would apply prospectively only; service credited to a member on or before the effective date of the act would be credited as full-time service.

    The bill provides that the Division of Pensions and Benefits is to adopt rules and regulations defining part-time and full-time service. An employer shall, upon request, provide to the Division any information and records necessary to substantiate the classification of a member's service as part-time or full-time.

    On a different but related subject, the bill provides that the compensation used in determining a member's retirement allowance shall not include that portion of salary in any year of creditable service or fiscal year used for the calculation of the member's retirement allowance which exceeds by more than 10% (1) the salary in the immediately preceding year of creditable service or fiscal year, as the case may be, or (2) if the years of service or fiscal years that are used are sequential, the amount of salary used in the immediately preceding year for the purpose of calculating the member's retirement allowance.

    The provision requiring the Division of Pensions and Benefits to adopt rules and regulations shall take effect immediately, and the remainder of the act shall take effect on January 1, 1997, and shall apply to all new members and to the future service of current members.