S-1819/A-3024

Provides for distributions from ABP during transition to retirement programs for faculty at institutions of higher education.

NJEA opposes S-1819 (Thompson, Cunningham, Greenstein / A-3024 (Giblin, Riley, Wagner).  This bill amends a provision of the Alternate Benefit Program (ABP) to allow a distribution of retirement benefits prior to separation from service for any individual who is a participant in a transition to retirement program which meets the requirements established by the Division of Pensions and Benefits in the Department of the Treasury.  The bill would allow the division to authorize a transition to retirement programs by regulation allowing public colleges and universities to retain retiring experienced senior faculty members on a limited basis.  These programs would permit a limited number of faculty members to receive a distribution from his or her retirement account in the ABP while continuing to work at a reduced level of assignment for a period of time.

While NJEA supports the concept of retaining experienced faculty, we are concerned these benefits will only be offered to politically connected individuals and not all employees.  In addition, NJEA is concerned that transition to retirement programs may have unintended consequences.  Transition to retirement programs may result in lower retirement benefits and decreased Social Security benefits for many employees.  The retirement benefits of employees enrolled in the ABP are based on total plan accruals - employee and employer contributions, plus earnings.  To the extent employees enroll in a phased-retirement program, stop employee and employer contributions to their retirement account, they will have reduced savings to draw down on in retirement.  Employees participating in a phased retirement program may also receive lower Social Security benefits in retirement.  If the phased retirement period is part of the retiree’s Social Security earnings calculation (35 highest income years) it is possible their Social Security benefits could be lower in addition to their reduced retirement accumulation.  Workers under their full retirement age who sacrifice a high-paying job to enter a phased retirement program - - especially a lengthy program - -could wind up with lower Social Security benefits in retirement.

It should also be noted that retirement may also affect the retiree’s dependents.  Public employees are eligible for group life insurance during their working career.  It is not clear if surviving dependents of employees participating in a phased retirement program are covered by the active group life insurance should the worker die on the job.  At the very least, the survivor benefit would be significantly reduced because the group life insurance is calculated on the employee’s salary during their last twelve months of employment.

Finally, NJEA is concerned that phased retirement programs might be “gamed” to shift costs normally attributable to the employer.  Full time public employees are eligible for employer-sponsored health insurance.  Employees of county colleges who retire with 25 or more years of service credited to their ABP account are eligible for State-paid health insurance in retirement.  It is not clear if employee participating in a transition to retirement program are enrolled in their employer’s health insurance plan or (if eligible) in the State Health Benefits Program at the expense of the State, thus creating an incentive for employers to enroll employees in transition to retirement programs because it may save the employer money regardless of the future financial impact on the retiring employee and their dependents.

Until these concerns are adequately addressed, we ask you to vote “NO” on S-1819 / A-3024.