NJ COLA Orals (8): The IRS Made Us Do It

Chapter 78, P.L. 2011 includes on page 57 this phrase:

5. a. For purposes of this section, a “non-forfeitable right to receive benefits” means that the benefits program, for any employee for whom the right has attached, cannot be reduced. The provisions of this section shall not apply to post-retirement medical benefits  which are provided pursuant to law.

What New Jersey is claiming in the cost-of-living-adjustment (COLA) case is that COLAs are not part of the ‘benefits program’.  However the law defines an item specifically exempt from being a non-forfeitable right and that item is not the COLA.

So why did the law include that sentence clarifying that post-retirement medical benefits are forfeitable? Because legislators wanted to be sure that when they got around to altering those benefits (with higher copayments, deductibles, or employee contributions) union lawyers wouldn’t be able fight any changes by claiming the umbrella of non-forfeitabilty for medical benefits.

But as the state is arguing that COLAs are exempt from that non-forfeitable pledge, not being part of the ‘benefits program’, they need to explain why COLAs also were not excluded by name, as post-retirement medical benefits were.  They do it by blaming the IRS:

The reference here is to Internal Revenue Code section 401(h) which begins:

401(h) Medical, etc., benefits for retired employees and their spouses and dependents:  Under regulations prescribed by the Secretary, and subject to the provisions of section 420, a pension or annuity plan may provide for the payment of benefits for sickness, accident, hospitalization, and medical expenses of retired employees, their spouses and their dependents, but only if—
…….(1) such benefits are subordinate to the retirement benefits provided by the plan,

To grasp the absurdity of the state’s line of reasoning you must understand:

  1. IRS determination letters for government plans are rubber-stamp fee-generators for the IRS (when they were in the determination-letter business);
  2. Medical benefits are a pass-through in New Jersey with no fund attached;
  3. Until such time as the state redefines ‘base benefit’ as $100 per month how are medical benefits ever going to be subordinate to retirement benefits that provide, on average, about 60% of salary?

Completely ridiculous but, if you’ll notice, the judges were not laughing…possibly because they did not have enough information to be in on the joke.

Finally, in the Appellate Division Judge Reisner had asked all parties to file supplemental briefs concerning this very issue. The state, in their brief, flatly stated without limitation or qualification:

N.J.S.A. 43:3C-9.5 was enacted as part of L. 1997, c.113. Although parts of that law were enacted in direct response to a settlement that had been reached between the State and the Internal Revenue Service (“IRS”), (ISSa1-8)2, the nonforfeitable rights provision was not included to address any IRS concerns.



7 responses to this post.

  1. Posted by Anonymous on March 19, 2016 at 8:21 pm

    Not sure I follow the State’s line of reasoning but I guess I’m not alone. So just like Christie lied and broke the law he signed (PL 2011 c. 78, although previously upheld by NJSC) he and his are trying to surmise what others intended under previous legislation. Hope the IRS wasn’t watching, can you say AUDIT!


    • Posted by Tough Love on March 19, 2016 at 8:26 pm

      If the IRS really was looking for something to audit, it should be the tax-deductibility of safety worker “disability” pensions ……… 90% of which are total BS and a MAJOR taxpayer ripoff.


      • Posted by Anonymous on March 19, 2016 at 8:44 pm

        I am police officer and I agree with TL. I wouldn’t say 90% are bogus quite a bit less but, for christ sake, disabilities for nonsense aches and pains are ridiculous. I believe only acc disability and not ordinary disability is tax free. My back hurts, shoulder pain, whatever. Total crap!!!!! Exists in the private sector too. Which we all pay for as well. Save the violins for the cops who are really hurt. (Shot, bad car wreck, fight, etc.) Not the frauds who game the system. I don’t totally blame them, they may have a moral flexibility I dont, but the people that approve this nonsense are who is at fault. Same for frivolous lawsuit crap, etc. List goes on for to long…. .


        • Posted by Tough Love on March 19, 2016 at 9:24 pm

          I thought I was reading a ….. breadth of fresh air …. until you messed it up by adding …. “I don’t totally blame them, they may have a moral flexibility I don’t, but the people that approve this nonsense are who is at fault.”

          YES, those who approve it are ALSO at fault, but aren’t they approving false and contrived submissions by officers who falsely claim disability …… and are the officer doing not ALSO deserving of “Blame” ?

          Those falsely filing for disablilty should be being fired and criminally charges as well.


          • Posted by Anonymous on March 20, 2016 at 4:31 am

            Yes. The blame is primarily on the lawyers/doctors/ins company etc thst allow this crap. Of course the person taking advantage is to blame also. This is a nationwide problem in many fields and violaters should most definetly be charged. Cop, construction worker, office worker, anyone who commits fraud of any kind should pay the price.

  2. Posted by Eric on March 20, 2016 at 12:58 pm

    Wow! Only in NJ could the state try to perpetrate such fraud upon a non-informed court.


    • Posted by Tough Love on March 20, 2016 at 2:16 pm

      The STATE of NJ has been trained about fraud from the BEST ….. NJ’s Public Sector Unions/workers.

      Haven’t they perpetrated a massive, decades-long fraud against NJ’s Private Sector Taxpayers, via their grossly excessive pensions & benefits …….. BOUGHT from our elected officials with Public Sector Union campaign contributions and election support ?


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