Certifying Officer Letters

SUBJECT: Program Changes Affecting Payroll Operations for the State Employees Deferred Compensation Plan (IRC 457b)

On June 7, 2001 President Bush signed the federal Economic Growth and Tax Relief Reconciliation Act of 2001. This legislation contains a number of requirements and plan options that will change the defined contribution plans administered by the Division of Pensions and Benefits.

This letter contains a summary of the changes that will be effective in 2002 for the State’s section 457 plan, the New Jersey State Employees Deferred Compensation Plan.

No changes are required in the methods used to report payroll deferrals or the types of information reported to the Division of Pensions and Benefits.

Under the Economic Growth and Tax Relief Reconciliation Act, 457(b) Deferred Compensation Plan participants can defer up to the lesser of $11,000 or 50% of compensation for the tax year 2002.

To calculate the maximum deferral amount for Deferred Compensation, the member’s tax deferred contributions to other plans must first be subtracted from gross pay. These plans and their applicable IRS code are shown below:

The maximum deferral for the 457(b) Deferred Compensation Plan is then 50% of the remaining salary up to the stated dollar limitation.

After 2002 the dollar maximums for the State Employees Deferred Compensation Plan will increase by $1,000 for each of the following tax years up to $15,000 in tax year 2006, after which the maximum will be indexed for inflation in $500 increments.

Coordination of 457(b) deferrals with 403(b) salary reductions is not required after December 31, 2001. Prior to December 31, 2001, a member’s ability to defer salary to a 457(b) deferred compensation plan was reduced by salary reductions under a 403(b) tax-sheltered annuity program such as those offered under SACT, ACTS, or ABP. For example, in 2001 the 457(b) deferral limit was $8,500. If a member had a salary reduction agreement under SACT/Tax-Shelter for $3,000, the deferral limit under 457(b) was reduced to $5,500; therefore the total deferral/reduction for the year was $8,500 between the two programs.

Starting in 2002 this coordination requirement is eliminated from section 457 of the Internal Revenue Code. Therefore, unless the member’s salary deferrals are otherwise limited, an individual may defer $11,000 to the 457(b) deferred compensation plan and another $11,000 to any 403(b) tax-sheltered annuity program for a total deduction of $22,000 without invoking any of the permitted catch-up provisions.

In the three years prior to retirement a Deferred Compensation Plan member may defer twice the normal limit. The eligibility requirements for this elective option under the plan remain unchanged. Prior to January 1, 2002, the annual catch-up deferral limit was set at $15,000. After December 31, 2001, the amount will be twice the prevailing normal deferral limit; for example, $22,000 in 2002 and $24,000 in 2003. The amount will increase until it reaches $30,000 in 2006 and thereafter be affected by indexing in the same manner as the normal deferral limit. A member must still have sufficient underutilization of deferrals (catch-up dollars) from prior years of plan participation and the election may only be used once. Members must still apply to take advantage of this catch-up provision. Members who have already used their three years of catch-up are not permitted to "re-start" catch-up under the higher limits.

A new "enhanced" deferral amount is permitted for those members age 50 or older. The new amount will first be effective in tax year 2002. The amount will be permitted in addition to the normal deferral amount (lesser of $11,000 or 50% of compensation for the tax year 2002) and be available to anyone at least 50 years of age at any point during the tax year. The "enhanced" deferral amount will not be available during any tax year in which the member elects to use the higher, traditional catch-up limit.

The additional amount available will be $1,000 in tax year 2002 for a maximum deferral of $12,000 and will increase by $1,000 per year through 2006 when it reaches $5,000 after which the maximum will be indexed for inflation in $500 increments. The member does not have to do anything to take advantage of this deferral other than select a contribution amount high enough to reach the maximum contribution limit.

To encourage greater participation, the Deferred Compensation Board has reduced the minimum contribution levels permitted under the rules of the plan. Beginning January 1, 2002, Deferred Compensation Plan participants may defer as little as the larger of 1% of pay or $10 per pay, $20 per month.

If you have any questions about this subject, please call the Defined Contributions Unit at (609) 292-3440.

SUBJECT: Program Changes Affecting Payroll Operations for the State-Administered
Defined Contribution Plans (IRC 403b and 457b)

This letter contains a summary of the changes that will be effective in 2002 for the State’s section 457 and 403(b) plans. These plans include the New Jersey State Employees Deferred Compensation Plan, the Supplemental Annuity Collective Trust of New Jersey (SACT), the Additional Contributions Tax Sheltered Program (ACTS), and the Alternate Benefit Program (ABP).

No changes are required in the methods used to report payroll deferrals or the types of information reported to the Division of Pensions and Benefits.

Under the Economic Growth and Tax Relief Reconciliation Act, 457(b) Deferred Compensation Plan participants can defer up to the lesser of $11,000 or 50% of compensation for the tax year 2002.

To calculate the maximum deferral amount for the 457(b) Deferred Compensation Plan, the member’s tax deferred contributions to other plans must first be subtracted from gross pay. These plans and their applicable IRS code are shown below:

The maximum deferral for the 457(b) Deferred Compensation Plan is then 50% of the remaining salary up to the stated dollar limitation.

Participants in 403(b) tax-sheltered annuity plans (SACT tax deferred, ACTS, and ABP additional voluntary contributions) can defer up to the lesser of $11,000 or 100% of compensation (without reduction for deferrals to other plans) for the tax year 2002.

After 2002 the dollar maximums for all plans will increase by $1,000 for each of the following tax years up to $15,000 in tax year 2006, after which the maximum will be indexed for inflation in $500 increments.

In the three years prior to retirement, a Deferred Compensation Plan member may defer twice the normal limit. The eligibility requirements for this elective option under the plan remain unchanged. Prior to January 1, 2002, the annual catch-up deferral limit was set at $15,000. After December 31, 2001, the amount will be twice the prevailing normal deferral limit; for example, $22,000 in 2002 and $24,000 in 2003. The amount will increase until it reaches $30,000 in 2006 and thereafter be affected by indexing in the same manner as the normal deferral limit. A member must still have sufficient underutilization of deferrals (catch-up dollars) from prior years of plan participation and the election may only be used once. Members must still apply to take advantage of this catch-up provision. Members who have already used their three years of catch-up are not permitted to "re-start" catch-up under the higher limits.

The additional amount available will be $1,000 in tax year 2002 for a maximum deferral in each plan of $12,000 and will increase by $1,000 per year through 2006 when it reaches $5,000 after which the maximum will be indexed for inflation in $500 increments. The member does not have to do anything to take advantage of this deferral other than select a contribution percentage amount high enough to reach the maximum contribution limit.

If you have any questions about this subject, please call the Defined Contributions Unit at (609) 292-3440.

TO: Public Employees’ Retirement System Certifying Officers, Institutions of Higher Education

Acting Governor DiFrancesco signed Chapter 253, P.L. 2001 into law on November 15, 2001. This law allows retired members of the Public Employees’ Retirement System (PERS) to accept employment in teaching positions with institutions of higher education, regardless of salary, without being subject to suspension of their retirement benefits and re-enrollment in the PERS.

The law defines institutions of higher education to include Rutgers – the State University, the University of Medicine and Dentistry of New Jersey, the New Jersey Institute of Technology, the State colleges and universities, and the county colleges.

The law already permitted PERS retirees to return to work without affecting their retirement benefits, as long as their salary was below $10,000 per calendar year. Chapter 253 eliminates the earnings limit only for teaching positions at institutions of higher education.

PERS members must have a valid retirement to take advantage of this law. That is, they must have terminated all PERS covered employment prior to their retirement and due and payable dates, their retirement must be due and payable, and they must have at least a thirty-day break in employment after their effective retirement date. In other words, members must terminate employment prior to their retirement date and not start PERS covered employment again until after they have been issued their first retirement check.

If you have questions about this law, contact our Office of Client Services at (609) 292-7524.

TO: SHBP Participating Local Government Employers
        SHBP Participating Local Education Employers
        State Biweekly Benefits Administrators
        State Monthly Human Resource Directors/Benefit Administrators

SUBJECT: Changes in Chiropractic Care for Traditional Plan and NJ PLUS Members

The State Health Benefits Commission recently adopted a change in policy for chiropractic care for members enrolled in the Traditional Plan and NJ PLUS. The policy change will be effective January 1, 2002.

The new policy allows for a 30-visit maximum per benefit year. Members will no longer need to submit updated medical records and/or treatment plans for review and approval for services rendered on or after January 1, 2002.

For all services received prior to January 1, 2002, the current chiropractic claim and utilization review program will continue to apply. Horizon Blue Cross Blue Shield of New Jersey has already notified Traditional Plan and NJ PLUS members who are currently in review status for chiropractic care of this change in policy.

Traditional Plan and NJ PLUS members with questions regarding this change of policy should contact Horizon Blue Cross Blue Shield of New Jersey at 1-800-414-SHBP (7427).

SUBJECT: Combining Service Credit Under Multiple Retirement Systems to Qualify for Employer-paid State Health Benefits Program Coverage

P.L. 2001, Chapter 209, signed on August 15, 2001 by Acting Governor DiFrancesco, amended the statutes (N.J.S.A. 52:14-17.25 et seq.) governing a retiree's eligibility for state or employer-paid coverage under the State Health Benefits Program (SHBP). Chapter 209 provides for an aggregation of nonconcurrent pension credit in multiple pension funds to qualify for the 25 or more years of service credit needed for State or employer-paid retired SHBP benefits. Chapter 209 did not change the definition of a qualified retiree under the provisions of P.L. 1997, Chapter 330 which provides for the State payment of a portion of SHBP coverage for retired Police and Firemen's Retirement System members and law enforcement officers.

Before Chapter 209, retirees of the State, boards of education and state and county colleges, excepting those who retired on disability retirement benefits, needed 25 or more years of service credit in a single retirement system to qualify for State-paid retired SHBP coverage. Local participating employers could also choose to provide employer-paid SHBP coverage to their retirees who accrued 25 years of creditable service in a single State or locally administered retirement system.

Chapter 209 now permits the 25-year service credit requirement to be met by combining nonconcurrent service credit in one or more State or locally administered retirement systems.

The member must be receiving a retirement benefit from each membership and cannot have withdrawn or allowed the accounts to expire.

For example, a member with 15 years in a PERS account, who then accrues 10 years of nonconcurrent service in the TPAF, and retires and begins to receive a benefit from both accounts could be eligible. Conversely, a member with 15 years in a PERS account and 10 years in a TPAF account, who had concurrent service for 2 of those years, would not be eligible because they would only have 23 years of nonconcurrent service.

To qualify for coverage based on combined service in more than one retirement system, members must:

Retire and collect a benefit from each retirement system;

Have more than 25 years of nonconcurrent service credit in total;

Retire from the last retirement system after the effective date of this law, August 15, 2001;

Be eligible for employer-paid SHBP coverage immediately prior to retirement from the last contributing employer in the retirement system for retirees of the State or participating local employers who have agreed by resolution to pay for the coverage of their retirees. In order to receive state-paid SHBP coverage as a retiree of a school board or county college, a retiree must be eligible for employer-paid coverage immediately prior to retirement or separation from the school board or county college. The school board or county college must have been the retiree’s last contributing employer; and

Notify the Division of Pensions and Benefits that they have an aggregate of 25 or more years of nonconcurrent service in more than one public retirement system in New Jersey.

Please note, the provisions of Chapter 209 are not retroactive. This new law does not affect members who retired prior to August 15, 2001.

Chapter 209 also changed the legal basis for Chapter 48, P.L. 1999 resolutions by removing the reference to the local government law (N.J.S.A. 40A:10-23). Local government units participating in the SHBP can use the provisions of Chapter 48 for greater flexibility in defining which employees qualify for post-retirement SHBP coverage. Chapter 48 provided that employers may, under uniform conditions, assume the cost of post-retirement medical coverage for retirees and their dependents who have:

Retired on a disability pension; and/or

Retired with 25 or more years of service credit in one or more State or locally administered retirement systems and a period of service of up to 25 years with the employer at the time of retirement, such period as established by the employer; or

Retired upon or after the attainment of age 65 with 25 or more years of service credit in one or more State or locally administered retirement systems and a period of service of up to 25 years with the employer at the time of retirement, such period as established by the employer; or

Retired on or after age 62 with at least 15 years of service with the employer.

TO: Certifying Officers of Municipal Authorities Participating in the State Health Benefits Program

On July 31, 2001, Chapter 189, P.L. 2001 became law with provisions affecting municipal authorities participating in the State Health Benefits Program (SHBP). This legislation allows a municipal authority that participates in the SHBP or another group health benefit plan to:

The decision of the municipal authority to allow its employees to waive coverage and the amount of the incentive to be paid cannot be subject to the collective bargaining process.

The law requires employees participating in the SHBP to file a waiver with the Division of Pensions and Benefits when they accept an incentive in lieu of health coverage, and a declaration when they revoke the waiver. The attached State Health Benefits Program Coverage Waiver/Reinstatement form is to be used for these purposes in conjunction with the SHBP Application. This form is to be completed by any employee electing to waive health coverage to receive a cash incentive. The form is also to be used by an employee to reinstate waived health coverage due to the loss of the employee's spousal coverage. The employee must attach the form to a completed New Jersey State Health Benefits Application when filing with the Division.

Any municipal authority contemplating exercising its right to offer a cash incentive to waive health benefits should discuss with legal counsel the federal income tax consequences of such an action on its employees. If a cash incentive provided by an employer is not part of an Internal Revenue Code Section 125 plan, the health benefits provided to its other employees may be subject to federal taxes. Municipal authorities considering offering a cash incentive are urged to seek the advice of counsel that is knowledgeable with federal and state tax matters, especially with regard to employee benefits plans.

If you have any question regarding this law, please call the Division’s Office of Client Services at (609) 292-7524.

SUBJECT: Request for List Of Contracts Covering PFRS Members

The Police and Firemen's Retirement System (PFRS) Board of Trustees has asked the Division of Pensions and Benefits to establish a program to monitor changes in pensionable compensation of members participating in the PFRS. The Board expects this program to include the review of individual employment agreements and collective bargaining unit contracts for PFRS members to ensure that compensation reported by employers as creditable for pension purposes meets the definition established in N.J.A.C. 17:4-4-1.

As a preliminary step in the development of this program, the Division needs to identify the number and type of contracts pertinent to PFRS members. Please complete the attached form listing this information and return it by October 30, 2001.

Instructions: Under Agreement or Contract, list the bargaining unit representing a group of covered employees and the union that represents that group, e.g., Superior Officers Association, PEA. For individual contracts, list the title(s) covered under the agreement, e.g., Chief of Police, Fire Chief.

Under # Employees Covered, list the number of employees covered under a collective bargaining contract. For individual employment contracts, list the first initial and last name of the covered member. Under Contract Period, list the starting and ending dates of the current contract period.

If you have any questions about this letter or the form, please contact the External Audit Unit at (609) 292-3664. The e-mail address is Czyzyk_m@tre.state.nj.us

                 Teachers’ Pension and Annuity Fund (TPAF)
                 Public Employees’ Retirement System (PERS)
                   Police and Firemen’s Retirement System ( PFRS)
                     State Police Retirement System (SPRS)
           Alternate Benefit Program (ABP)

SUBJECT: Benefit Continuation for Employees Called to Active Duty During Operations Noble Eagle and Enduring Freedom

President George W. Bush announced a call-up of reserve forces as part of Operation Noble Eagle and Operation Enduring Freedom in response to the recent terrorist attacks against the United States. Acting Governor Donald T. DiFrancesco issued Executive Order #133 extending benefits to certain State employees called-up to military duty for Operation Noble Eagle and Operation Enduring Freedom.

This memorandum provides guidance to employers on the subject of continuation of benefits of employees called-up for military duty.

Leave of Absence with Pay for Military Service - State Employees (Includes those receiving full pay, differential pay or no pay).

Employees covered by Executive Order #133 receive the following benefits while in active military service:

Health Benefits. Although health benefits coverage can continue for employees who are called-up for military duty, it may not be in their interest to do so. This is particularly the case if there is a cost to the employee for continuing the coverage. Employees with single coverage will have their full medical needs met by the military. Family members could possibly have their needs met by the military or other coverage. Therefore, employees should be given the option of waiving the health benefits coverage in case they do not need the coverage while the employee is on military duty. If not expressly waived, that coverage will be continued while the employee is on military duty. If coverage is not waived and is continued, the employee will be responsible for normal employee contributions for this coverage. These contributions will be deducted from any differential pay provided. If there is no differential pay or if it is insufficient to cover the health benefits contributions, the employee contributions will be collected from the employee upon return from military duty.

The employee should be given the attached form, Waiver of State Health Benefits Program Coverage While on Military Duty, so the option to cancel coverage can be exercised. Dependent coverage cannot be continued without the employee being covered except under the provisions of COBRA.

Differential Pay and Deductions. The Office of Management and Budget will issue detailed guidance on this subject. Employees’ regular pension contributions, contributory group life insurance premiums, and medical and dental premium payments will be deducted from their pay or paid by employers in the absence of sufficient pay. Upon the employee’s return from military duty, the employer will collect any payments that were made on the employee’s behalf.

If pension back deductions, arrears, and loan payments are not met from differential pay, their collection should be automatically resumed when the employee returns to employment. Employees who wish to make supplemental retirement plan contributions based on their full salary may do so upon return from military duty by filing a USERRA form, which is attached and described on page 3.

Alternate Benefit Program (ABP). ABP employee contributions will be based upon the gross differential salary. Employer contributions to the ABP will be based upon full base salary and should be paid regardless of whether the employee receives differential pay. Employees who wish to make contributions based on their full salary may do so upon return from military duty by filing a USERRA form, which is attached and described on page 3.

Local employers and independent authorities are not covered by the Executive Order. They have the option of paying compensation, however, to their employees who are called to active military duty. Whatever policy the employer adopts should be applied consistently to all affected employees.

Local employers who elect to consider employees called up for military duty as on a paid leave of absence should continue to report and remit regular pension contributions, and, if appropriate, State Health Benefits Program payments in the normal manner. If an employee receives no differential pay or if the differential pay is insufficient to cover all deductions in effect at the time of activation, the employer should pay the deductions for an employee's regular pension contributions, contributory group life insurance, and, if appropriate, State Health Benefits Program coverage. The employer may then bill the employee for these costs after the military leave is over. If the differential pay is not sufficient to cover back deductions, arrears, and loans, indicate that in the remarks column of the Report of Contributions. If you file your Report of Contributions by tape, do not reflect any of these payments and resume deductions upon the employee’s return from military duty.

This situation applies to those employees whose employers elect not to extend similar benefits available to State employees under the Executive Order.

Public employees who are called to military duty and are not considered as being on a paid leave of absence may have pension entitlements when they return to work under the provisions of the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA) 38 USC 4301 et seq. USERRA provides that an employee who leaves a civilian employer for the purpose of serving in the uniformed services, and who returns to employment with the employer, is entitled to restoration of certain pension and similar benefits that would have accrued but for the employee's absence due to qualified military service. These employees shall be treated as not having incurred a break in service with the employer by reason of the member's period of service in the uniformed services. The period of service shall count as if the member had never left for the purposes of vesting or determining eligibility for retirement and health benefits, but not for benefits calculation purposes. For example, a member with 24 years of pension credit and 1 year of eligible service in the uniformed services would have 25 years of service and would be eligible to collect a retirement benefit before age 60 for PERS and TPAF members, or be eligible for employer paid health benefit coverage (if this benefit is available). However, the actual pension calculation would use the 24 years of service. An example for vesting purposes would be that a member with 7 years of pension credit and 3 years of eligible service in the uniformed services would be vested.

When the member returns to covered employment within the time frames specified under USERRA, the employer shall notify the Division in writing that the member has returned from service in the uniformed services and the dates of such service using the attached USERRA form.

The member may also receive pension credit for the period of uniformed service by making the employee pension contributions that would have been required had the member not left employment to serve in the uniformed services. The member may request in writing that the Division schedule back deductions based upon the salary the member would have received but for the period of service; or if the determination of such rate is not reasonably certain, on the basis of the member's average rate of compensation during the 10 or 12 month period immediately preceding such service. The salary is then multiplied by the member's rate of contribution in effect when the member returned for the period of time in which no credit was received in the system for that service. Any payment to the plan described in this paragraph shall be made during the period that begins on the date of reemployment and continues for the lesser of either five years or three times the period of the uniformed service. The member may choose to pay the amount in one lump sum instead of back deductions. The Division must receive the request for this time within the lesser of either five years or three times the period of the uniformed service from the date of reemployment, to receive credit for such service. If the member decides to make contributions for this service, those contributions or lump sum payment shall be deferred from federal taxation.

The member is also permitted to make additional elective deferrals (Deferred Compensation, ACTS or SACT) in an amount not exceeding the maximum amount the employee would have been permitted to contribute during the period of military service if the employee had actually been employed by the employer during that period.

Life Insurance. Coverage for noncontributory death benefits continues for 93 days after the last day of paid covered employment. A member may convert coverage to an individual policy directly with Prudential within the 31 days beyond the 93 days of coverage as described above. If a member wants to keep converted coverage after reemployment, the member must prove insurability to restore the coverage through the retirement system. If the coverage is not converted or the converted coverage is surrendered, the coverage is reinstated automatically upon return to employment.

For continuation of existing contributory insurance coverage under PERS and TPAF, the member must prepay the contributions to the Division directly for the 93 days of coverage.

Health Insurance. A military leave of absence is treated as any other leave of absence without pay for health insurance purposes under SHBP. Notwithstanding the availability of health care services available through the military, employees may want to continue coverage under the State Health Benefit Program (SHBP) for themselves or their dependents.

For a Local employee in the SHBP, coverage terminates on the last day of the first month for which the employee received no salary payment. The employer may elect to permit the employee to continue their benefit coverage from the SHBP for up to nine months for themselves and eligible dependents by repaying the full cost of the coverage to the employer in advance. If the employee is still on leave beyond the time for which coverage has been purchased, coverage may then be extended under COBRA for a period not to exceed 18 months. If the employer does not offer this payment option while on leave, then the employee may elect to continue coverage under COBRA for a maximum time period of 18 months.

Employees and/or dependents have the right to continue their SHBP benefits under COBRA for the full 18 months. In these cases, the employees need not be covered. A dependent may independently elect to continue benefits under COBRA.

Upon return to employment, the employee must complete an SHBP enrollment application to reinstate benefits. The coverage is reinstated on the actual date of return to employment.

Please contact the Office of Client Services at (609) 292-7524 or e-mail us at pensions.nj@treas.state.nj.us if you have any questions about this subject.

Acting Governor DiFrancesco signed Chapter 201, P.L. 2001, into law on August 8, 2001. This law converts all of the service credit earned in the Public Employees’ retirement System (PERS) to full Police and Firemen’s Retirement System (PFRS) service credit for members who transferred to the PFRS under the provisions of Chapter 247, P.L. 1993. The new law also requires the reimbursement of any payments made by PFRS members who opted to pay for the conversion of their PERS service to PFRS service under the provisions of Chapter 247.

There is no cost to the member or the employer for this benefit enhancement. The law provides for funding of the benefit with excess assets from the PFRS fund.

Those members already retired who did not pay the cost to convert PERS service to PFRS service will have their retirement allowance recalculated. The law will be effective on the first of the month following ninety days after enactment. Therefore, it will affect all retirements beginning December 1, 2001.

The Division of Pensions and Benefits will take the following steps to implement this law.

Notifying all affected retirees of the increase in retirement benefits caused by this law. (A copy of the letter sent to retirees who do not have a PFRS loan is attached for information purposes only).
Notifying, through the employer, all active employees affected by this law. (A copy of the letter sent to active employees who do not have a PFRS loan is attached for information purposes only).
Instructing employers to stop payroll deductions for members still paying the liability for converting their PERS service to PFRS service under Chapter 247. A certification of payroll deductions will be sent for each affected member to stop these deductions effective September 30, 2001 (September 28 check for employees paid by State Centralized Payroll). If the member is also paying for the purchase of additional service credit through arrears, the balance due on that purchase will be separated and recertified effective October 1, 2001. Payments must be stopped on a specific future date so refunds can be calculated accurately.
Refunding payments made by PFRS members to convert their PERS service to PFRS service under Chapter 247. If the member or retiree has a PFRS loan, then the refund will be applied to the loan balance. Revised loan certifications will be sent to employers, as necessary, to stop or adjust the loan repayment schedule.
Recalculating retirement allowances of members and, where appropriate, survivors, of PFRS members who retired with Chapter 247 benefits. Changes will appear in the January 1, 2002 check.

If you have any questions, please call the Office of Client services at (609) 292-7524.

Text of letter to active employees transferred to PFRS under the provisions of Ch 247, P.L. 1993 who did not convert PERS service to PFRS service.

Acting Governor DiFrancesco signed Chapter 201, P.L. 2001, into law on August 8, 2001. This law converts all of your service credit earned in the Public Employees’ retirement System (PERS) to service credit in the Police and Firemen’s Retirement System (PFRS). This means that when you retire, you will be entitled to receive the full benefits under the PFRS rather than partial benefits from both the PERS and the PFRS.

The law will be effective on the first of the month following ninety days after enactment. Therefore, it will affect all retirements beginning December 1, 2001. If you retire between now and the effective date of the law, your benefit will be recalculated when the law takes effect.

There is no cost to you for this benefit enhancement. The law provides for funding of the benefit with excess assets from the PFRS fund.

If you have any questions, please call the Office of Client services at (609) 292-7524.

Text of letter to retirees were transferred to PFRS under the provisions of Chapter 247, P.L. 1993 who will have their retirement allowance changed due to Chapter 201, P.L. 2001.

Acting Governor DiFrancesco signed into law a bill that will enhance your monthly retirement benefit. Chapter 201, P.L. 2001, signed on August 8, 2001, converts all of your service credit earned in the Public Employees’ retirement System (PERS) to service credit in the Police and Firemen’s Retirement System (PFRS). When you retired, we calculated your pension using the PERS formula for your PERS service credit and the PFRS formula for your PFRS service credit. We then added the two benefits together to produce your monthly retirement allowance. Since the PFRS retirement formula provides a significantly higher retirement benefit than that of the PERS, your retirement allowance will increase when we recalculate your retirement allowance using all PFRS service credit.

The law will be effective on the first of the month following ninety days after enactment, December 1, 2001. Therefore, you will see your first enhanced benefit payment in your retirement allowance check for December, which will be dated January 1, 2002. There is no provision in the law for any retroactive adjustment to benefits. If you are now receiving a Cost-of-Living Adjustment (COLA), your COLA will also increase because it is based on a percentage of your enhanced retirement benefit. Prior to you receiving your increased benefit, we will send you a revised summary of your retirement benefits that will include information on the amount of your enhanced benefit as well as any survivor’s benefit payable.

If you chose an option on your PERS Application for Retirement Allowance to leave a pension benefit to a beneficiary upon your death, that PERS death benefit eligibility will cease on December 1, 2001. Instead, you will have the death benefits that other PFRS retirees have. The PFRS provides a pension of 50% of final compensation to your spouse upon your death plus an additional pension to your unmarried children under age 18. It also provides life insurance equal to half of your final compensation.

There is no cost to you for this benefit enhancement. The law provides for funding of the benefit with excess assets from the PFRS fund.

If you have any questions, please call the Office of Client services at (609) 292-7524.

Chapter 133, P.L. 2001 decreases the rate of pension contributions for TPAF members to 3 percent of salary effective January 1, 2002. This TPAF employee contribution rate will remain in effect through 2002 and will continue there after as long as the excess assets of the TPAF permit. This is not a permanent change in the normal contribution rate of 5 percent of salary. Therefore, the minimum repayment for pension loans and the minimum deduction for the purchase of service credit, which is based on the full 5 percent contribution rate, will not change.

If you have any questions regarding this matter, please contact this Division's Audit/Billing Section at (609) 292-3630.

TO: Participating State Health Benefits Program Local Government Employers
and Independent State Authorities that Pay Post-Retirement Medical Costs for Retirees

SUBJECT: Local Group Rate Actions for Retiree Coverage – Local Government Employers

This memorandum details the actions taken by the State Health Benefits Commission on June 29, 2001 concerning State Health Benefits Program (SHBP) rates and plan changes that affect retirees. For simplicity, this memorandum will only address the rate actions that apply to the retired coverage rates for Local Government Employers and Independent State Authorities. All rate actions are effective January 1, 2002 and are based upon the recommendation of the Commission’s actuarial consultant, Milliman USA.

Unfortunately, medical trend rates for employer-sponsored health plans are returning to levels not seen since the early 1990s. This is occurring nationally, and New Jersey is not exempt from the forces driving these costs. Health care trend is the forecasted percentage change in a health plan’s per capita claim cost. Factors such as utilization, improvements in technology, general inflation, mandated benefits, and changes in the mix of services are all components of trend. Nationally, industry experts have been reporting trends of 9%-15% for medical plans. Prescription drug plans are reporting trends of 18-20% for active employees and retirees younger than age 65. Higher trends are expected for retirees age 65 and older.

Milliman USA reports that both medical and prescription drug trends experienced by the SHBP in its largest plans were higher than anticipated at the last renewal analysis. This means that the claims experience for the group has been worse than expected. This pattern of higher trends is consistent with the nationwide results of other employers with similar programs, and is a result of increased utilization and higher medical costs resulting from factors such as continued advances in medical technology. In addition, the new rates had to take into account three additional months of trend due to the one-time use of an 18 month rating period (July 2000 through December 2001) instead of the usual 12 month period to transition SHBP rates from a fiscal to a calendar year basis. As a result of incorporating the three months of additional trend, the 2002 calendar year rate increases are higher by approximately 2% on medical coverage and 5% on prescription drug coverage.

It was necessary that the Commission approve the recommended increases in order to ensure that the State Health Benefit Program would have sufficient premium to cover the anticipated claims for the period. Since the SHBP self-funds most of its plans, the claims experience used in projecting 2002 costs are based upon the actual claims experience of the group. Rates for the self-funded plans are established on a self-supporting basis without margin or any intent to increase the plan balances.

Plan Name	Non-Medicare Retirees	Medicare Retirees
Traditional Plan	30.4%	30.5%
NJ PLUS	36.3%	21.4%
Aetna USHealthcare	12.2%	23.7%
Amerihealth	16.0%	17.7%
CIGNA	14.8%	23.7%
Health Net (formerly PHS)	6.2%	9.3%
Oxford	8.3%	5.0%
University	13.9%	12.8%

Prescription drug coverage through a card plan is included in all medical plans.

Actions Taken by the State Health Benefits Commission to Control Rising Costs

Change in the SHBP Traditional and NJ PLUS Retiree Prescription Drug Card Plan retail pharmacy network – Effective January 1, 2002 retirees covered under this plan will have a customized network of participating retail pharmacies. The current network arrangement requires pharmacies in the network to provide brand name drugs at 13% off the Average Wholesale Price (AWP). Pharmacies that elect to participate in the new custom network will guarantee 15% off the AWP for brand drugs. These cost savings reduced the rate increases required for the Traditional Plan and NJ PLUS Medicare retiree rates by about 1.1-1.6% and are reflected in the chart above.

Change in the Traditional Plan and NJ PLUS Retiree Prescription Drug Card Co-pays and Out-of-Pockets Maximum – In addition to the change in the retail pharmacy network detailed above, the Commission approved changes in the Traditional Plan and NJ PLUS retiree prescription drug pilot plan co-payments and out-of-pocket maximums as required by NJAC 17:9-6.10. Effective January 1, 2002, retail co-payments for retirees enrolled in the Traditional Plan and NJ PLUS will be as follows: $5 generic, $11 preferred brand and $21 non-preferred brand for a 30 day supply (an increase of $1 in both brand drug categories). Mail-order co-payments will also go up by $1 for the brand drug categories ($5 generic, $16 preferred brand, $26 non-preferred brand). The annual out-of-pocket maximum for prescription drug expenses will increase from $300 to $345.

Change in Prescription Drug Benefits Provided by HMOs –The Commission has updated the retiree prescription drug benefit provided by SHBP HMOs to a 3-tier design to encourage the use of less expensive brand name drugs when multi-source drugs are available. HMOs will provide prescription cards with retail pharmacy co-pays of $5/$10/$20 (generic/preferred brand/non-preferred brand) and appropriate co-pays for mail order. Milliman USA has indicated that the change in retiree co-pays reduced the HMO rates for Medicare retirees by about 1.5%. This reduction is reflected in the HMO rate actions listed above.

Since Horizon HMO has been eliminated from the medical plans offered by the SHBP, Horizon HMO members will receive a direct mailing informing them of the elimination of the HMO. No action is required unless they wish to select another plan other than NJ PLUS. Horizon HMO members who do not complete an application during open enrollment to transfer to another health plan will automatically be transferred to NJ PLUS effective January 1, 2002.

Please be assured the State Health Benefits Commission shares your concern about rising health care costs and your commitment to provide high quality health plans to employees and retirees at the best available price.

Calendar Year 2002 SHBP rate charts are attached. Information concerning plan and rate changes will be sent to retirees this fall.

If you have questions, contact Client Services at (609) 292-7524 or call the Employer Hotline at (609) 777-1082 and leave a message. A staff member will return your call on the next business day.

This memorandum details the actions taken by the State Health Benefits Commission on June 29, 2001 concerning State Health Benefits Program (SHBP) plan changes and rates. For simplicity, this memorandum will only address the rate actions that apply to the active employee rates for Local Education Employers. All rate actions are effective January 1, 2002 and are based upon the recommendation of the Commission’s actuarial consultant, Milliman USA.

Milliman USA reports that both medical and prescription drug trends experienced by the SHBP in its largest plans were higher than anticipated at the last renewal analysis. This means that the claims experience for the group has been worse than expected. This pattern of higher trends is consistent with the nationwide results of other employers with similar programs, and is a result of increased utilization and higher medical costs resulting from factors such as continued advances in medical technology. In addition, the new rates had to take into account three additional months of trend due to the one-time use of an 18 month rating period (July 2000 through December 2001) instead of the usual 12 month period to transition SHBP rates from a fiscal to a calendar year basis. As a result of incorporating the three months of additional trend, the 2002 calendar year rate increases are higher by approximately 2% on the medical plans and 5% on the prescription drug plans.

For employers that provide a separate prescription drug card plan (no coverage for prescription drugs is provided through the SHBP medical plans)		For employers that do not provide a separate prescription drug card plan (coverage for prescription drugs is provided through the SHBP medical plans)
Plan Name	Rate Action	Plan Name	Rate Action
NJ PLUS	12.0%	NJ PLUS	8.5%
Traditional Plan	22.0%	Traditional Plan	24.5%
Aetna USHealthcare	8.7%	Aetna USHealthcare	11.7%
Amerihealth	12.2%	Amerihealth	16.0%
CIGNA	12.4%	CIGNA	14.5%
Health Net (formerly PHS)	8.6%	Health Net (formerly PHS)	6.2%
Oxford	9.4%	Oxford	8.2%
University	13.1%	University	14.1%
SHBP Employee Prescription Card Plan	17.4%	****NA***

Actions Taken by the State Health Benefits Commission to Control Rising Costs

The Commission approved the following plan changes to help control rising costs:

Change in the SHBP Employee Prescription Drug Card Plan retail pharmacy network – Effective October 1, 2001 employees covered under this plan will have a customized network of participating retail pharmacies. The current network arrangement requires pharmacies in the network to provide brand name drugs at 13% off the Average Wholesale Price (AWP). Pharmacies that elect to participate in the new custom network will guarantee 15% off the AWP for brand drugs. These cost savings reduced the rate increase required for the prescription drug card plan by about 2.7%, and are reflected in the chart above.