Implementation of Healthcare Contributions by Public Employees Pursuant to P.L. 2010, c. 2

April 11, 2010
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In March 2010, the Governor signed P.L. 2010, c. 2 into law which implemented pension and health insurance reform for public employees within this State. The Law amended eighteen (18) sections of the State Health Benefits Program, Title 40A and Title 18A, with the effective date of May 21, 2010, the Divisions of Pensions and Benefits and Local Government Services have recently issued guidance on implementing the law. Generally, the Law provides:

    • The cost of employee health benefits shall be shared by public employees through the withholding of 1.5% of an employee’s base salary.


    • The reimbursement for waiving health coverage is reduced to 25% of the cost of the premium or $5000.00, whichever is less.


    • The 1.5% contribution is not required if an employee waives health coverage.


  • Employees covered by a current applicable collective negotiations agreement will commence the 1.5% contribution upon the expiration of that agreement.

The two most prevalent questions which arise are:

    • When the contribution becomes effective for employees covered by a collective bargaining agreement.


  • How the Law treats non-aligned employees.

Union Employees

Unionized employees who are covered by a current collective bargaining agreement, in effect on May 21, 2010, do not begin the 1.5% contribution until the expiration of the contract. Employees covered by a collective negotiations agreement which expired prior to May 21, 2010 and who have not ratified a successor contract by May 21, 2010 will begin the contribution on May 21, 2010.

Non-aligned Employees

The Law has generated much confusion in relation to non-aligned employees. In fact, the Law, and the guidance offered by the Divisions of Pensions and Benefits (“Pensions”) and the Division of Local Government Services (“LGS”), conflicts in relation to the effective date of the contribution made by employees who are not members of a union. As discussed below, part of the confusion results from the provisions of the Law which affect State Health Benefits Program (including School Employees Health Benefits Program) (“SHBP”) and non-SHBP employees differently.

The Law amends the SHBP for employees of the State, independent authorities, commissions, corporations or organizations, and addresses those employees who are not within a collective negotiations unit. Specifically, in relation to SHBP employees, the Law provides, the amount of the contribution required by employees for whom there is no majority representative for collective negotiations purposes shall be determined in a manner consistent with the terms, if any, concerning health benefits coverage which are in a collective negotiations agreement deemed applicable to the employee.

In other words, the Law indicates that the contribution of non-unionized employees of the State, independent authorities, etc., who are participating in SHBP “shall be determined in a manner consistent with the terms, if any, concerning health benefits coverage which are in a collective negotiations agreement deemed applicable” to the employee.

That section, however, only applies to SHBP-participating employers. The section of the Law which addresses municipalities and boards of education omits the above language referencing a collective negotiations agreement. Thus, generally, if an employee is not a member of a union, nor a participant in SHBP, he/she must begin making the 1.5% contribution on May 21, 2010.

Complicating this issue, on April 20, 2010, the Pensions released a publication to assist employers in understanding the changes to public employee health benefits which provided, in pertinent part:

    • Employees with no labor affiliation should begin the 1.5% contribution when the labor organization they are most closely aligned begins paying the contribution… Where there is no clear relationship between the non-aligned employee and a labor organization, the non-aligned employee should begin paying the 1.5% minimum contribution in the first full payroll cycle after May 21st (emphasis added).

Subsequently, however, on April 28, 2010, the Division issued a revised copy of this publication. Most notably, the Division omitted the above language providing that non-aligned employees begin paying the mandatory contribution when the labor organization with which they are most “closely aligned” begins paying the contribution. In its place, Pensions failed to provide any guidance on when the mandatory contribution is to be applied to non-aligned employees.

On May 18, 2010, LGS also issued Local Finance Notice 2010-18 (“LFN”), which also addresses the issue of non-aligned employees. The LFN indicates that those employees with individual employment agreements should be reviewed on a case-by-case basis to determine whether the terms of an applicable collective bargaining agreement are incorporated into the individual employment contract. If so, according to the LFN, these employees would be considered aligned and would not begin contributing until expiration of the applicable collective bargaining agreement. The LFN also provides that, if an individual employment agreement does not incorporate the terms of a collective bargaining agreement, that contract should be reviewed under the Constitutional principle that a state may not pass any law impairing a contract. Nonetheless, the FLN reiterated the proposition that non-aligned employees without an individual employment contract must begin contributing 1.5% on May 21, 2010.

Thus, unless subject to an exception, all employees must contribute 1.5% of their base salary towards the cost of healthcare, effective May 21, 2010. The exceptions to this general rule are:

    • Employees covered by an applicable collective negotiations agreement, in effect on May 21, 2010.


    • Employees who waive health coverage.


  • Non-aligned employees with an individual employment contract which incorporates the terms and conditions of health coverage provided by a collective negotiations agreement.