SENATE BUDGET AND APPROPRIATIONS COMMITTEE
STATEMENT TO
SENATE, No. 1119
with Senate committee amendments
STATE OF NEW JERSEY
DATED: APRIL 17, 1997
The Senate Budget and Appropriations Committee reports without recommendation Senate Bill No. 1119 of 1996 with amendments.
Senate Bill No. 1119, as amended, codifies administrative procedures that conform the Teachers' Pension and Annuity Fund, the Alternate Benefit Program, 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 (IRC) requirements of federal tax "qualified" pension plans.
The bill provides, in accordance with IRC section 401(a)(2), that 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 be used for or diverted to purposes other than for the exclusive benefit of the members or their beneficiaries. The bill provides that the contributions and benefits payable under the retirement systems will be subject to the benefits and contributions limits of IRC section 415.
The bill provides that the annual compensation on which employer and employee contributions and benefits may be based under the State-administered retirement systems will not exceed the annual compensation limit set by IRC section 401(a)(17). The current federal limit is $160,000 annually. The limit will not apply to a member of the systems enrolled prior to July 1, 1996 if that employee's employer certifies to the Director of the Division of Pensions and Benefits prior to July 1, 1997, that the employer will pay the additional cost for not applying the limit to the member.
The bill also provides that a vested member of a retirement system or fund listed in the bill will have non-forfeitable right to receive benefits as provided under the laws governing the retirement system or fund upon the attainment of five years of service credit in the system or fund or on the date of the enactment of the bill, whichever is later. However, this provision of the bill will not apply to post-retirement medical benefits which are provided pursuant to law. The bill also requires the State to make an annual normal contribution and an annual unfunded accrued liability contribution to each system and fund except under two circumstances set forth in the bill.
The bill will not preclude the forfeiture, suspension or reduction of benefits for dishonorable service. In addition, the right to receive benefits will not be deemed to: (1) limit the right of the State to alter, modify or amend the retirement systems, other than the above-mentioned benefits for members who have attained 10 years of service, or (2) create in any member a right in the corpus or management of a retirement system.
COMMITTEE AMENDMENTS
The committee amended the bill to:
* Add the Alternate Benefit Program to the listing of the retirement systems and funds to which the bill will apply;
* Place responsibility for the implementation and enforcement of the limitations described in section 2 of the bill on the Division of Pensions and Benefits in the Department of Treasury;
* Provide that the annual compensation on which employer and employee contributions and benefits may be based under the State- administered retirement systems not exceed the annual compensation limit set by IRC section 401(a)(17);
* Provide a vested member of a system or fund listed in the bill with a non-forfeitable right to receive benefits as provided under the laws governing the retirement system or fund in effect on the date of attainment of five years of service credit in the system or fund by the member;
* Require the State to make annual normal contributions and annual unfunded accrued liability contributions to each retirement system or fund except under two circumstances set forth in the bill.
FISCAL IMPACT
Because the bill codifies current pension system practices, which practices have always been to maintain the plans in compliance with the standards for federally "qualified" plans, the bill makes no substantive changes to the fiscal management plans. As amended, the bill establishes a "nonforfeitable" right to certain pension benefits after five years of service credit for vested employees. The fiscal impact of this provision, if any, cannot be calculated because any impact would only occur as the result of future statutory changes in pension benefits which cannot be foreseen.