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State’s Top Court Says No Retiree COLA Payments Until Pension System Is Healthy

Public employee unions outraged at ruling. One characterizes it as ‘theft, plain and simple’

supreme court

New Jersey’s Supreme Court served up a big win for Gov. Chris Christie and state lawmakers yesterday with a ruling that preserves the state’s right to hold back regular cost-of-living adjustments from retired public workers until the public-employee pension system is in much better shape.

The high court’s 6-1 decision keeps in place one of the major elements of a bipartisan benefits-reform effort that Christie has touted as a signature achievement and a model for other states facing severe pension-funding issues since it was enacted in 2011.

The ruling also maintains the current math for New Jersey’s $71 billion pension system, which should help Democratic legislative leaders as they try to make the case that the system can still be saved if voters support a ballot question this fall seeking to give constitutional protection to a series of hefty state pension contributions.

But for retired workers who are already in the pension system, the state’s victory is a major setback. It means their regular pension checks won’t keep pace with inflation unless the pension funds are eventually restored to better health.

Lawmakers from both parties praised the ruling, and Christie used its release yesterday to renew his calls for further benefits reform. The ruling, however, was faulted by public-employee unions who said the court is effectively punishing workers for the state’s failure to live up to its previous pension-funding promises.

The Republican Christie and Democrats who control the state Legislature worked together to enact a series of changes in 2011 that were designed to put the pension system back on solid footing after years of skipped or partial state contributions left it grossly underfunded.

Among the changes that were made in a reform law known as Chapter 78 was a requirement that both employees and the state contribute more to the pension system. The new law also pushed back the retirement age for workers and suspended cost-of-living adjustments for retirees until the health of the pension funds is restored.

But after Christie decided not to follow a seven-year schedule of ramped up state pension contributions that was called for in the 2011 law, public-worker unions took him to court, resulting in last year’s landmark ruling that said only state voters could authorize such financial obligations. Though it was a win for the Christie administration, that decision also highlighted his failure to live up to the funding promises that were embedded in an initiative he later held up as a model for other states.

In response to the 2011 law, a group of retired workers also challenged whether the state had the right to suspend the cost-of-living adjustments. They argued that a 1997 state law that made pension benefits a “non-forfeitable right” also covered the inflationary increases.

An appellate panel agreed with the retired workers, but the Supreme Court said that since the 1997 statute didn’t specifically bestow nonforfeitable protections in writing to the cost-of-living adjustments they could not rule in favor of the retired workers.

“To construe a statute as creating a contractual right, the Legislature’s intent to limit the subsequent exercise of legislative power must be clearly and unequivocally expressed concerning both the creation of a contract as well as the terms of the contractual obligation,” said Justice Jaynee LaVecchia in the majority opinion. back in March, said yesterday that the majority opinion “substituted its own political judgment for the sound legal interpretation provided by those appellate courts.”

“Based on this decision, all public employees should be gravely concerned that their remaining pension benefits have any legal protections left,” he said.

Wendell Steinhauer, president of the New Jersey Education Association, which was a part of the case, also questioned the ruling. He called the high court’s action “theft, plain and simple.”

“Our members were promised a COLA as part of their compensation, and they did the work required to earn it,” Steinhauer said.

“They also paid every penny they owed toward their pensions,” he said. “The state’s failure to adequately fund the pension system over nearly two decades is no excuse for taking away something that our members earned and paid for.”

Hetty Rosenstein, state director of the Communications Workers of America, another plaintiff in the case, said many workers planned their retirements counting on the regular adjustments to keep pace with inflation.

“It’s terrible for the people who counted on that money,” Rosenstein said. “They were made a promise.”

But Christie, in a statement issued by his office yesterday, said the ruling “affirms my administration’s position that our Constitution and public-pension system must work for all New Jerseyans, not just the special class of public-union employees.”

Christie last year proposed a new round of benefits changes that included calling for a freezing of the current pension system and for employees to accept less generous healthcare coverage. Democratic legislative leaders have yet to embrace his more recent recommendations.

“I continue to urge the Legislature and stakeholders to work with me on a long-term solution to make our pension system and public-employee benefit costs affordable and sustainable,” Christie said yesterday.

Instead, Democrats have been advancing a proposed constitutional amendment as part of their own effort to shore up the pension system. They’re working to put before voters this fall a ballot question seeking to write into the state constitution a series of sizable state pension contributions that governors would then be forced to make.

For example, the state pension contribution in the current budget is $1.3 billion, but the payments would eventually rise to over $5 billion if the amendment passes in November.

Christie and others have said the state won’t be able to afford those contributions without tax hikes or service cuts. But supporters say those payments are affordable with normal growth and potential new revenue from an expanded Transportation Trust Fund and possibly casinos opening in North Jersey.

Losing the court case over the cost-of-living adjustments would have added billions of dollars to the state’s already substantial pension debt -- one Wall Street rating agency estimated $13 billion more -- meaning the annual contributions called for in the proposed amendment would have had to be even more robust to fill the overall funding gap.

Asked yesterday if he was breathing a sigh of relief after the court ruling was issued, Senate President Stephen Sweeney, the sponsor of the pension-funding amendment, said that wasn’t the case.

“I knew what the outcome was going to be when the challenge came to be honest with you,” said Sweeney (D-Gloucester).

Sweeney also said some retirees, including local police officers and firefighters, should be able to get their cost-of-living adjustments restored sooner than they think once all the reforms start to take hold.
“We didn’t end (the adjustment), we suspended it. And we suspended it until we could afford to pay,” Sweeney said.

Coincidentally, Monmouth University’s Polling Institute yesterday released the results of a recent survey that focused on the pension-funding issue.

The survey found 71 percent of New Jersey voters supported forcing the state to make the full pension contributions by 2021. But voters also said they if they were forced to decide between fully funding the pension system or other programs like education and services for the poor, they would put fully funding those other programs ahead of the pension payment.

“At first glance there appears to be widespread support for constitutionally guaranteeing that the full pension obligation is met in each annual budget,” said Patrick Murray, director of the Monmouth poll. “However, it is not clear that voters really comprehend that approving this measure would mean pension payments would automatically take precedence over funding other key services.”

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