Public and Council Discuss State Pension Report

The Town Council Tuesday night discussed the implications of a recent state comptroller report, which suggested Westfield, among dozens of towns and school districts statewide, misinterpreted a 2008 shift in state pension law.

In 2007, the State of New Jersey passed a law that said effective Jan. 1, 2008, a new pension system would be implemented statewide, requiring towns to ensure that workers who participate in the pension program are employees and not contractors. The law said workers considered contractors would not be eligible for pension benefits under the new system. Following the passage of the new law, towns used IRS standards to determine who was and was not considered an employee, and therefore who would be eligible to participate in the new state pension program.

Before 2008, Westfield’s five attorneys—the Planning Board and Board of Adjustment attorneys, the town prosecutor, the public defender and the town attorney—all participated in the state pension program. The report, titled “State Comptroller Investigation Identifies Widespread Improper Participation in State Pension System,” states that the Office of the State Comptroller has passed along the names of 202 pension enrollees to the Division of Pensions and Benefits “for review and removal of improper pension credits.” Presumably included among the 202 are the names of the five Westfield attorneys who may have been wrongfully allowed to participate in the pension program.

After the passage of the new law, the Town Council determined those attorneys to be part-time employees, rather than contractors, and therefore they remained eligible to participate in the pension program. First Ward Councilman Sam Della Fera said Westfield believed although it was no longer required, it was in the best interest of the town to treat the attorneys as employees, ensuring the town had “behavioral control” over those positions. As a result, the attorneys remained eligible to participate in the pension program.

Town Administrator Jim Gildea added that since these people were in their specific positions prior to the passage of the new law, and as long as they remained in their positions after the passage of the law, the town believed they were grandfathered in the pension plan. As soon as any of them left their positions or changed positions they would lose their pension eligibility.

“We interpreted the law with good faith; we kept people in, and we took people out when they changed their [working] status,” Gildea said.

That is where the state believes Westfield got it wrong. According to the state’s interpretation of the law, there is no grandfather clause. Additionally, the state believes part-time town attorneys, and other professionals, most of whom have their own offices and practices, are not employees at all, but contractors. Had Westfield officials come to the same conclusion, both the attorneys and the town would have ceased contributing to the attorneys’ pension funds.

It is worth noting that at this point, none of the five attorneys are still in the positions they held in 2008, rendering all the positions ineligible for future state pension participation.

Sal Caruana, a member of the Town Council from 2003 to 2010, said at the meeting that he and other council members felt they had a moral obligation in 2008 to continue supporting the lawyers’ pensions. He said that if they were hired with the understanding that the job came with a pension, the pension should continue as long as they remained in their position. Caruana said it was possible those attorneys took their town jobs in part because they offered pension benefits, and if the town was to cut those benefits, it was conceivable those lawyers would have left.

Resident John Blake had a different perspective. He said electing to contribute to the lawyers’ pension funds unnecessarily cost the town of Westfield, and the taxpayers, money. Caruana said he believes the expertise of the attorneys more than covered their pension contributions. He said good lawyers do good work, and the additional expertise that came with these attorneys saved the town money. Had the pension contributions been eliminated, Caruana argued, the town could have been left with representation perhaps not as adept, effectively costing the town more money.

Also, Caruana said he never remembered town pension contributions into those attorneys’ funds being above $7,000 in a given year during his tenure on the council. Della Fera said that since 2008 the total contribution by the town to these five attorneys’ pension funds was $24,000, about $5,300 per year, which, he said, is “real money,” but in his mind does not put the town at financial risk.

Third Ward Councilman Dave Haas disagreed with Caruana that electing to continue pension contributions into the attorneys’ funds was a moral imperative. He said he believes the state pension is in dire straits, and fears full time town employees, like those of the Westfield Department of Public Works, are in danger of losing their pensions to an insolvent fund, especially if the state is expected to pay out pension benefits to professionals in situations similar to Westfield’s attorneys.

Caruana said he thinks the state pension fund’s shaky status has little to do with it paying benefits to professionals, but due instead to bad finance and poor money management. To remain solvent, Caruana said, the fund needs to average a 7.75% return each year, which it has not done since 2007. Considering the current status of the economy, Caruana said he does not believe 7.75% annual return to be a realistic goal, putting the fund in jeopardy. Given better management, Caruana said, the fund could be healthier in the future.

The comptroller’s report recommends to the Division of Pensions and Benefits that it devise a “comprehensive checklist for local governments to use to clarify the pension eligibility of each of their professional service providers.” Once hard guidelines are set to determine who is and is not eligible, The Division of Pensions and Benefits will then filter through the list of the 202 names to determine who since 2008 has been entitled to pension contributions and who has not.