ASSEMBLY, No. 2083
STATE OF NEW JERSEY
INTRODUCED JUNE 3, 1996
By Assemblywoman TURNER, Assemblyman ROBERTS, Assemblywoman Buono, Assemblymen Suliga, Greenwald, Gusciora, Romano and Mattison
An Act conforming the administration of certain State-administered retirement systems and pension funds to federal Internal Revenue Code requirements, ensuring members' rights to pension benefits, and supplementing Title 43 of the Revised Statutes.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. The Legislature finds and declares that:
a. the sole purpose of the State-administered retirement systems is for the exclusive benefit of the members and their beneficiaries;
b. this precept was violated by P.L.1992, c.41 and P.L.1994, c.62 which provided for revaluations of the retirement systems and in the process took approximately $1 billion of contributions from the retirement systems and used the funds for non-pension purposes;
c. the Internal Revenue Service examined these actions and found them to be improper, holding that once contributions were deposited into a retirement system they could not be transferred out of the system;
d. to avoid litigation, the State reached an agreement with the IRS to restore by June 30, 1997 approximately $1 billion in funds to the retirement systems; and
e. the State also agreed to incorporate the provisions of section 401 (a) (2) and 415 of the federal Internal Revenue Code into New Jersey's statutes to ensure a vested member's contractual property right to a secure and financially sound retirement system.
2. In accordance with the provisions of section 401 (a) (2) of the federal Internal Revenue Code, at no time prior to the satisfaction of all liabilities with respect to members and their beneficiaries under the Teachers' Pension and Annuity Fund, established pursuant to N.J.S.18A:66-1 et seq., the Judicial Retirement System, established pursuant to P.L.1973, c.140 (C.43:6A-1 et seq.), the Prison Officers' Pension Fund, established pursuant to P.L.1941, c.220 (C.43:7-7 et seq.), the Public Employees' Retirement System, established pursuant to P.L.1954, c.84 (C.43:15A-1 et seq.), the Consolidated Police and Firemen's Pension Fund, established pursuant to R.S.43:16-1 et seq., the Police and Firemen's Retirement System, established pursuant to P.L.1944, c.255 (C.43:16A-1 et seq.), and the State Police Retirement System, established pursuant to P.L.1965, c.89 (C.53:5A-1 et seq.), shall any part of the corpus or income of the respective retirement systems or pension funds, within the taxable year or thereafter, be used for or diverted to purposes other than for the exclusive benefit of the members or their beneficiaries.
3. Notwithstanding any law, rule or regulation to the contrary, the Division of Pensions and Benefits in the Department of the Treasury shall adhere to and be governed by the provisions of section 415 of the federal Internal Revenue Code regarding limitations on benefits and contributions under qualified plans in the administration of the Teachers' Pension and Annuity Fund, the Judicial Retirement System, the Prison Officers' Pension Fund, the Public Employees' Retirement System, the Consolidated Police and Firemen's Pension Fund, the Police and Firemen's Retirement System, and the State Police Retirement System.
4. Vested members of the Teachers' Pension and Annuity Fund, the Judicial Retirement System, the Prison Officers' Pension Fund, the Public Employees' Retirement System, the Consolidated Police and Firemen's Pension Fund, the Police and Firemen's Retirement System, and the State Police Retirement System have a contractual property right to a secure and financially sound retirement system and the benefits provided by that system and these benefits shall not be jeopardized, diminished or impaired.
5. This act shall take effect immediately.
STATEMENT
The purpose of this bill is to conform the administration of the Teachers' Pension and Annuity Fund, the Judicial Retirement System, the Prison Officers' Pension Fund, the Public Employees' Retirement System, the Consolidated Police and Firemen's Pension Fund, the Police and Firemen's Retirement System, and the State Police Retirement System to federal Internal Revenue Code requirements in order to maintain the qualified status of these retirement systems and pension funds.
On March 22, 1996, the State and the Internal Revenue Service reached an agreement "in connection with an IRS examination of funding adjustments to the state pension systems in past fiscal years." The IRS held that P.L.1992, c.41 and P.L.1994, c.62, which provided for revaluations of the State-administered retirement systems, improperly took approximately $1 billion in contributions out of the retirement systems. It maintained that once contributions were deposited into a retirement system, federal qualification standards precluded a transfer of contributions out of the system. The State maintained that the transfer of contributions resulted from the State's lawful exercise of authority to establish contribution levels for its State-administered systems. Under the agreement, the IRS agreed to conclude its examination and the State agreed to restore approximately $1 billion in contributions in issue from FY1992 through FY1994, plus interest, to the retirement systems by June 30, 1997.
As part of the agreement, the State also agreed to amend its statutes governing the State-administered retirement systems to incorporate the provisions of section 401 (a) (2) and 415 of the Internal Revenue Code. This bill is intended to implement that portion of the agreement and provides that in accordance with the provisions of section 401 (a) (2) of the federal Internal Revenue Code, at no time prior to the satisfaction of all liabilities with respect to members and their beneficiaries shall any part of the corpus or income of the respective retirement systems or pension funds, within the taxable year or thereafter, be used for or diverted to purposes other than for the exclusive benefit of the members or their beneficiaries. The bill also provides that the Division of Pensions and Benefits shall adhere to and be governed by the provisions of section 415 of the federal Internal Revenue Code regarding limitations on benefits and contributions under qualified plans in the administration of the above-mentioned retirement systems and pension funds.
The bill also provides that vested members of the Teachers' Pension and Annuity Fund, the Judicial Retirement System, the Prison Officers' Pension Fund, the Public Employees' Retirement System, the Consolidated Police and Firemen's Pension Fund, the Police and Firemen's Retirement System, and the State Police Retirement System have a contractual property right to a secure and financially sound retirement system and the benefits provided by that system and these benefits shall not be jeopardized, diminished or impaired. This provision is consistent with actions taken by neighboring states, including New York, Pennsylvania, Delaware, Maryland and West Virginia. The 1992 and 1994 changes in this State's pension laws were passed on the explicit promise that employee pension benefits would not be jeopardized. The current administration maintains that employee pensions are safe and secure. This bill would codify that promise by granting vested members of State-administered retirement systems a contractual property right in their pensions.
Conforms administration of certain State-administered retirement systems and pension funds to Internal Revenue Code requirements; ensures members' rights to pension benefits.