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Pension Trustees Take New Tack, Ask Court to Require State to Pay ‘Unpaid Debt’

Filing doesn’t challenge recent NJ Supreme Court ruling that Christie could legally withhold payments to state workers’ retirement fund

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The New Jersey Supreme Court ruled against the state’s public-worker unions in a major pension-funding case last month, but the trustees of three retirement funds that are a part of the pension system have filed a new legal motion seeking to ensure the workers’ pensions are still made whole.

The filing in Superior Court in Mercer County is not an appeal of the high-court ruling issued on June 9, but represents a different attempt on new legal grounds to secure the funding – and this time with interest.

The trustees are seeking a contract judgment for unpaid debt against the state, the latest development in an ongoing struggle to shore up New Jersey’s chronically underfunded pension system -- something Gov. Chris Christie, a second-term Republican now running for his party’s nomination for president, once said he had remedied.

Instead, the pension system is now at least $40 billion in debt, and a 2011 law Christie enacted to boost funding for worker retirements with increased employee and state pension contributions has been abandoned by the state, even as workers continue to pay more toward their retirement.

The lawsuit filed by the employee unions that made it all the way to the Supreme Court this year sought to enforce a section of the 2011 law, known as Chapter 78, that promised as a contractual right of the employees a specific set of state pension contributions over a seven-year term.

The unions sued the state after Christie said last year that his administration couldn’t afford to live up to its end of the bargain because the economy has not rebounded as fully from the last recession as the governor thought it would when the original deal was struck.

In all, Christie’s budgets over the last two fiscal years have shorted the pension funds by a combined $2.25 billion. The current budget is on track to underfund it by nearly $2 billion more.

The high court’s majority sided with the Christie administration, which said long-term obligations like the state pension contributions are “subject to appropriation” each year as lawmakers work out the budget to ensure revenues and expenditures line up, something required by the state constitution. And another part the constitution says only voters can approve long-term obligations that total more than 1 percent of the state’s annual budget, the Supreme Court’s majority said.

The trustees’ motion, which was filed Friday, accepts that ruling, but asks the Superior Court to issue a judgment against the state to reflect that the overall contractual obligation to the workers spelled out in Chapter 78 must still eventually be met.

The trustees serve on the boards of the Public Employees Retirement System, the Teachers’ Pension and Annuity Fund and the Police and Firemen’s Retirement System, the three largest individual pension funds that make up the broader $80 billion pension system.

“This is a collection action under New Jersey statutes governing each of the Plaintiff Retirement Systems for breach of contract and constructive trust for unpaid contributions owed to the Retirement Systems administered by the Plaintiff Trustees,” according the motion.

“The individual Boards of Trustees bring this action to assure that the State honor its contractual promised deferred wages by reducing that promise to a judgment which can be enforced in the ordinary course, as would be any other contract judgment against the State,” the motion says.

Bennet D. Zurofsky, an attorney for the trustees, said by winning a judgment the pension funds would gain standing as a creditor of the state and would be put in line for repayment.

“That will increase the pressure on the state to come up with the money,” he said.

The state would also owe interest, which could be based on the amount the pension system, which is professionally managed, earned off investments in each fiscal year that the full state payment was not funded in the budget.

The motion also maintains that the Supreme Court erred in totaling up the pension contributions for each fund as one single appropriation because the annual budget provides allocations to each individual fund as separate line items.

That’s important because the state payment into the Police and Firemen’s Retirement System is not bigger than $338 million, which is 1 percent of the current $33.8 billion budget.

Christie, after signing the 2011 reform law, held up the changes hammered out following tough negotiations with Democrats who control the Legislature as a bipartisan model for other states struggling with huge unfunded pension liabilities.

And while delivering the keynote address at the Republican National Convention in 2012, Christie bragged that he had “saved retirees their pension.”

But last year, facing an unexpected $1 billion revenue shortfall, Christie announced he would not be making the full contributions pledged to the state employees for the 2014 and 2015 fiscal years. And earlier this year, Christie called for a new set of proposed employee-benefits changes, including freezing the current pension system and moving into a new retirement plan with features of a 401(k).

In response to the trustees’ new court filing, Christie spokesman Brian Murray yesterday pointed to last month’s Supreme Court ruling and the governor’s call for more reform.

“It is now time to move beyond lawsuits to find a tangible, long-term solution to this problem,” Murray said.

This time around, however, Democratic legislative leaders have not worked with Christie to enact new reforms. Instead, they are at an impasse, with the Democrats focusing on finding ways to get more funding into the pension system, which covers the retirements of an estimated 770,000 current and retired workers.

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