Proposal for Changes in Pension and Health Benefits Systems October 13, 2006

Key Issues Driving Need for Change  Pension system is seen as “broken” in the eyes of the media and the taxpayers  Too many opportunities for “abuse” by those with the ability/contacts to “work the system”  Systems have been subverted from original intent of delivering security to career service employees  Cost of delivering benefits is a major impediment to property tax relief efforts

Key Areas of Focus  Pension System Reform Eliminate concerns about “gaming” Ensure delivery of benefits to those who have provided career service to the public  Pension System Restructuring Provide equitable benefits with changes to reflect changes in the benefits environment Develop alternative benefit systems for non-career service employees Make sure benefits are not available to “non” employees”

Pension Reform  Changes in eligibility eliminates all opportunities for abuse! To enter any retirement system, require Full Time (35 hour per week) employment Non FT employees, as well as elected and appointed officials to be provided benefits under a defined contribution plan. Special language would be needed to ensure continued coverage for certain “consolidated” positions.

Pension Reform  If you cannot enter the system, there is no opportunity for abuse.  Those currently in system could maintain membership as long as their employment continues  Opportunities for “tacking, padding and boosting” disappear.

Specific Reforms  DB eligibility limited to Full-Time Employees working a minimum of 35 hours per week  Others, including less than FT, elected and appointed officials eligible to participate only in a Defined Contribution Plan with their contribution matched by the employer  Certain positions, such as professional services, excluded form participating in any retirement plan  Special language needed to consider certain positions affected by consolidation, e.g. tax assessors, code inspectors, etc.

Restructuring  Changes needed to bring systems into line with what’s happening in the marketplace  DB plan is still the best type of program for career service employees  Public workforce is far less mobile than that of the public sector; less affected by industry consolidations, mergers, etc.  Encourages reliable delivery of services to the taxpaying public

Specific Recommendations PERS Change accrual rate from N/55 to N/60 Correct change made in 2001 without adequate financial analysis  Change early retirement age to 62, consistent with Social Security Retirements prior to age 62 subject to a 3% per year reduction in benefits  Change compensation basis from 3 to 5 years or from 1 to 3 years where applicable  Eliminate Prosecutor Part benefit  Eliminate Special Benefit for WC Judges

Specific Recommendations PFRS  Eliminate the provision which allows for retirement with 50% benefit at 20 years service  Limit pension compensation to base salary; eliminate longevity pay inclusion  Change pension determination from final year’s pay to three year average  Eliminate “future change” to 70%/75% if fund balance reaches 104%; maintain current levels of 65% at 25 years and 70% at 30 years

Specific Recommendation Judicial Retirement System  Eliminate DB eligibility and provide a DC benefit on the same basis as other appointed officials

Other Recommendations  Cap payout for accrued sick/leave time at maximum of $15,000 for Local employers; same provision as State  Repeal law which permits State to utilize excess assets in lieu of contributions to the retirement systems  Change OD and AD provision in PERS and TPAF to an insured LTD benefit

Other Recommendations  Establish an appeals process for those who feel they have been treated unfairly, i.e. DB v. DC eligibility  Limit application of purchased service to pensions only; such purchases not to be applied for health benefit eligibility  Pension system loan interest rates to be set equal to the Prime Rate; fees to be established loan applications to cover administrative expense

Health Benefits  Consider closure of the SHBP to Local employers to be phased in within three years  Employee/Retiree contributions toward health benefits to be mandatory but dealt with at the bargaining table  Development of an alternative program for low income participants to be considered

Health Benefits  Eliminate Traditional and Current POS Plan  Issue RFP for PPO Plan with national network coverage