Follow Us:

Budget

  • Article
  • Comments

Analysis: $74 Billion In Future Pension Payments At Stake in Lawsuit

  • Even if Christie is able to make this year’s $1.558 billion pension payment and squeak through next year’s $2.25 billion cost, lawmakers and policy experts increasingly doubt the governor’s ability to make the $4.8 billion payment that would be due three years from now and still meet all of the state’s other fiscal obligations.

And that doesn’t even include the possibility that a decision by the Appellate Division could further complicate the pension debate.

Berg v. Christie is just the latest in a series of cases in New Jersey and in states across the nation that have been filed by unions and retirees over the past seven years challenging the right of cash-strapped state governments to put off pension payments, cut cost-of-living increases, and make other changes in pension benefits. But concerns about protecting the pensions of future retirees go back well before the state fiscal crises precipitated by the Great Recession of 2007-2009.

It was John Loos, lobbyist and political director for the Communications Workers of America, the state government’s largest union with more than 35,000 members, who negotiated the provision in the 1997 pension law that established pensions as a non-forfeitable right in exchange for the union’s support for a controversial pension bond issue that Gov. Whitman had proposed.

“We wanted the ‘non-forfeitable right’ language for pensions added to the state constitution, but we settled for getting the language added to the statute, along with a one-half percent reduction in our members’ pension contributions,” Loos recalled. “We hired our own actuary and we came to the conclusion at the national level that if this went through, the pension system would be 100 percent funded for the first time.”

Hetty Rosenstein, now the CWA district director, fervently opposed the pension bond issue, which enabled Whitman to continue to forgo contributions to the pension system, as her predecessor, Democrat Jim Florio, had done, and as her successors would do. In fact, Republican Gov. Donald DiFrancesco not only made no pension payment, but pushed through an unfunded 9 percent increase in pension payments.

Growing Pension Crisis

It wasn’t until Democrat Jon Corzine took office in 2006 that the growing pension crisis attracted any attention. Corzine raised the retirement age from 55 to 62 and increased employee pension contributions from 5.0 percent to 5.5 percent, but did not go after COLAs or any benefits that were being received by current retirees because of the Farber and OLS opinions holding that to do so would violate their contractual rights under the federal and state constitutions. Corzine also made a pair of $1 billion pension payments in 2007 and 2008 that were twice as much as his four predecessors had contributed in the previous decade.

When the state failed to make pension payments in 2009 and 2010 after state revenues plummeted in the wake of the Great Recession, the New Jersey Education Association and the other state unions filed suit asserting that the 1997 Whitman law establishing pensions as a “non-forfeitable right” required the state to make annual pension payments sufficient to ensure the fiscal health of the pension system, whose unfunded liability was soaring. The courts ruled that pensions were indeed a contractual right, but that it was up to the state to decide when and how to pay for them.

It was in response to that NJEA lawsuit that the 2011 pension law sponsored by Sweeney and signed by Christie was amended to fortify the contractual rights language of the 1997 Whitman pension law by making payment of the state’s scheduled pension contributions a contractual right for retirees, and giving each retiree the right to immediately sue the state if Christie or future governors failed to make the required payments on time.

However, the Sweeney bill also was raising the retirement age to 65, cutting pensions by 3 percent a year for those taking early retirement, and increasing pension payments from 8.5 percent of salary to 10 percent for police and firefighters (who are allowed to retire after 20 years) and phasing in an increase from 5.5 percent to 7.5 percent for teachers and other non-uniformed government workers.

These changes were projected to save $48 billion over 30 years, but the bulk of the savings -- $74 billion over three decades -- were to come from the elimination of cost-of-living increases for all retirees until their pension systems were 80 percent funded, which could take 30 years or more.

Loos, now retired, went in to testify against the legislation, and recalled that his face turned red when he told Sweeney, “You have a lot of nerve promising people a contractual right to funding when in the very same bill you’re abrogating their contractual right to benefits.”

A Challenge by the Unions

In NJEA v. Christie, the state’s unions challenged the increases in pension contributions, the elimination of the COLAs, and other changes, including increases in employee contributions for healthcare coverage that were mandated by law as part of an unprecedented four-year suspension of collective bargaining on health issues at the state and local government levels.

Superior Court Judge Mary Jacobson, the Mercer County assignment judge, upheld all of the provisions of the Sweeney bill, except for the COLA issues, which she consolidated into the Berg v. Christie lawsuit that was before Judge Hurd.

The rulings by Jacobson and Hurd are in line with those in most states over the past five years, with the notable exception of Arizona, where pension rights are specifically protected in the state constitution -- which is what Loos had hoped to achieve back in 1997 -- and in Colorado, where an appeals court overturned a trial judge who had granted a summary judgment for the state in a case similar to Berg involving the contractual rights of pensioners to receive COLAs.

NJEA Communications Director Steve Wollmer said the union did not appeal the Jacobson ruling on the increased pension contributions, but did join Ouslander, who has filed his own briefs as a pro se plaintiff, and the other 25 former lawyers from the attorney general’s office in appealing the COLA decision.

Lawyers for the unions believe the COLA case is stronger because it is an actual reduction in a benefit that current retirees have been receiving.

Loos, meanwhile, formed his own nonprofit advocacy organization, NJ Retired Public Employees, and has his eye squarely on the issue of whether the state will make the required $1.558 billion payment by June 30.

“With Christie making comments that everything is on the table, it’s going to be hard for the courts not to obligate the state to make this payment,” Loos said. ‘Someone is going to be in court on this the day after they don’t make the required contribution, and the intent of the legislation is very clear.”

Read more in Budget
Sponsors
Corporate Supporters
Most Popular Stories
«
»