Lerch, Vinci & Higgins, LLP

Understanding Chapter 78

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July 22, 2012

Local government entities are required to begin implementing the provisions of Chapter 78, P.L. 2011, the new law that changed the operation of State-administered retirement systems and health benefits programs. Effective June 28, 2011, this new law made various changes to pension and health care benefits for public employees. Pension Plan changes, which include new employee contribution rates and plan design changes, affect the following systems: Teachers’ Pension and Annuity Fund (TPAF), the Judicial Retirement System (JRS), the Public Employees’ Retirement System (PERS), the Police and Firemen’s Retirement System (PFRS), and the State Police Retirement System (SPRS). The law also requires all public employees and certain public retirees to contribute toward the cost of health care benefits coverage based upon a percentage of the cost of coverage. State of New Jersey

To facilitate these changes, Lerch, Vinci & Higgins, LLP has compiled a Fact Sheet, highlighting critical points of this new law. We are pleased to present it as follows:

LFN 2011-20R (Chapter 78, P.L. 2011)

o    Includes local units that provide health care coverage to their employees through an insurance fund, a joint insurance fund or in any other matter.

o    Effective June 28, 2011, or on the expiration of any applicable Collective Negotiations Agreement (CNA) in force on that date, all employees must contribute the greater of: i) 1.5% of current base salary towards health benefits cost, ii) Chapter 78 required contribution based on phase-in table or iii) any locally or contractually required contribution that applies to an employee.

o    New employees hired after June 28, 2011 that are not part of a CNA are required to contribute immediately under Chapter 78 utilizing “Phase-in Year 4” tables.

o    Chapter 78 allows for administrative convenience when implementing the required contributions.  Employee contributions are not retroactive, however, phase-in year 2 will still begin on July 1, 2012 regardless of the implementation date (except for employees covered by a CNA).

o    Base Salary is defined as the salary on which pension contribution or equivalent Defined Contribution Retirement Program (DCRP) salary is based (or would be if the employee was enrolled).  In other words, base salary is defined as pensionable salary.  In the case of Union employees, base salary may also be defined as all items that are included in the calculation of the employees hourly rate as defined in their contract.

o    Chapter 78 contributions are calculated based on a percentage of the health benefits premium using the tables provided in LFN 2011-20R pages 14-16.

o    What is included in health benefits premium for purposes of calculating the Chapter 78 contributions differs for employers enrolled in the State Health Benefits Program (SHBP) and those not enrolled in the State Health Benefits Program (Non-SHBP).

o    For SHBP employers, the cost is the premium for both medical and prescription drug coverage.

o    For Non-SHBP employers, the cost is the premium for all health care benefits including medical, prescription, dental, vision, etc…  It does not include employee benefits that are insurance policies such as long term care or disability.

o    Alternate employee health care contributions are permitted as long as they meet the criteria established under Chapter 78.

o    As of 6/28/11, employee contributions are not negotiable or locally set for four years, or four years from the expiration of contracts in effect on 6/28/11.

o    When a contract that requires a health benefits contribution higher than Chapter 78 expires, the contract provision remains in effect until a subsequent contract amends or removes it, or until the Chapter 78 requirement is greater.

To download this Fact Sheet in pdf format, please click here. If you would like assistance implementing this law, please do not hesitate to contact Julius Consoni, 201-791-7100.


Certified Public Accountants

17-17 ROUTE 208 FAIR LAWN NJ 07410 (201) 791-7100  Fax (201) 791-3035 dlerch@lvhcpa.com