November main header 2019
  • Mort Reinhart
  • Sweeney Proposes Hybrid Pensions

    for New and Under Five-Year Employees  


    Are we about to get Tier 6 for our pension system?


    A piece of legislation (S-3753) sponsored by Senator Stephen Sweeney that would negatively affect retirement benefits for anyone new who enters the pension system after the legislation becomes law or who is currently in the system with fewer than five years of credit was introduced in the Legislature in the Spring. To date, no action on the bill has taken place. 


    If passed and signed by the Governor, the law would signal the end of the singular defined benefit retirement system that has been the basis of retirement for all education and other public employees since 1955. In its place would be a hybrid system that combines a small basic defined system and a new defined contribution system. 


    Current employees with five or more years of pension credit would not be affected by the change and would remain in the same pension tier in which they began their current employment. 


    The hybrid system would contain a defined benefit component based on a salary of up to $40,000 and a formula that was based on years of credit divided by 60. (N/60 times $40,000 = a basic annual pension.)  Above the $40,000 salary amount would be a defined contribution plan (a 401k plan) that would utilize the 7.5% regular pension contribution to build a sum of money in an individual account for each educator covered by the new system.  That sum would receive a minimum of a 4% return (or a higher amount if the pension system’s growth was greater than 6%). The actual amount would depend on what the plan’s actuaries certify as the fund’s return each year. 


    At retirement, the retiring employee would receive a combination of the defined benefit amount based on the formula explained above and an amount derived from the sum to which the defined contribution has grown. (Exact amounts are difficult to calculate at this time.)


    Regular retirement (service retirement) under the proposed plan would be age 67. Anyone with 30 years of credit would be able to retire before age 67, but would suffer a 3 percent reduction in the defined benefit portion of the hybrid plan for each year he/she was under age 67.


    While no action has taken place since the introduction of the bill, NJASA is keeping a close watch on it and is prepared to act if it shows any movement in the Legislature.