SENATE, No. 378

STATE OF NEW JERSEY

Introduced Pending Technical Review by Legislative Counsel

PRE-FILED FOR INTRODUCTION IN THE 1996 SESSION

By Senator McNAMARA

An Act concerning the calculation of pension benefits in the Public Employees' Retirement System and supplementing P.L.1954, c.84 (C.43:15A-1 et seq.).

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

    1. 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 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. 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. 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 full-time service. 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 full-time account.

    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 ½ of the compensation received during the last year of full-time service.

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

    5. The Division of Pensions 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.

    6. Section 5 of this act shall take effect immediately, and the remainder of this act shall take effect on January 1, 1988 and shall apply to new members and to the future service of current members.

STATEMENT

    This bill is designed to eliminate the practice of pension-padding in the Public Employees' Retirement System. Pension-padding is possible in PERS because there is no distinction between part-time service and full-time service, and a member may now combine part-time service credit with full-time service credit and receive a pension which is out of proportion to the contributions paid into the system by both the employee and the employer.

    Under the provisions of the bill, separate accounts will be established for the crediting of part-time service and full-time service. For purposes of establishing service credit, 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 highest average annual salary for three years, the retirement allowance shall consist of a total retirement allowance determined on the basis of the part-time service plus the full-time service credit and final compensation received during the full-time service. If the member is entitled to a pension based upon ½ of the compensation received in the last year of service, the total retirement allowance shall consist of the retirement allowance determined by the years of part-time service divided by the total years of service and multiplied by ½ 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 services and multiplied by ½ of the compensation received during the last year of full-time service.

    These calculations will not affect or reduce the pension of any career part-time or career full-time member of the retirement system.

    All previous service credited to a member on the effective date of the act shall be credited as full-time service.

    An employer shall, upon request, provide to the Division of Pensions any information and records necessary to substantiate the classification of a member's service as part-time or full-time.

    Rules and regulations shall be adopted by the Division of Pensions to define part-time and full-time service.

    The provision requiring the Division of Pensions to adopt rules and regulations shall take effect immediately, and the remainder of the act shall take effect on January 1, 1988, and shall apply to all new members and to the future service of current members.

Establishes part-time and full-time accounts in PERS, and requires the calculation of a retirement allowance on the basis of the separate accounts.