Today, New Jersey legislators will vote on bipartisan legislation to commit the state government to a schedule of quarterly pension payments that will provide fiscal stability to our underfunded pension system and save billions of dollars in future costs for state taxpayers.
This is landmark legislation that is desperately needed in the wake of last week’s bond downgrade by Standard & Poor’s — the 10th credit downgrade in seven years — and Bloomberg’s report that New Jersey’s public pension system is the worst-funded in the nation, even worse than fellow fiscal basket case Illinois.
Making pension payments every three months — rather than at the end of the year — will improve the fiscal stability of the pension funds for teachers and state government employees by generating hundreds of millions of dollars in additional investment income in future years and by ensuring that pension contributions are made, not skipped.
I am proud to cosponsor this legislation on a bipartisan basis with Senate Minority Leader Tom Kean (R-Union) and Senator Steve Oroho (R-Sussex). Similarly, Assembly Speaker Vincent Prieto (D-Hudson) is teaming up with Assemblyman David Rible (R-Ocean) to pass the bill in the Assembly.
While Gov. Chris Christie has vetoed previous quarterly pension-payment legislation, I am confident based on the conversations we have had and the changes we have made in the legislation that he will sign this bill into law.
Mandating quarterly payments is a relatively new idea for public pension systems, but the idea has been commonplace in the private sector for decades — which I know because I manage two private pension funds in my capacity as an international vice president for the Ironworkers Union.
In fact, the federal Employee Retirement Income and Security Act — better-known as ERISA — requires quarterly pension payments for all private pensions that are considered significantly underfunded because they have less than 70 percent of the assets needed to meet future pension obligations.
As the Treasury Department reported in May, New Jersey’s $41.4 billion in teacher and state employee pension funds represents just 48.6 percent of the assets needed to meet future pension obligations.
There are two reasons that the federal ERISA statute requires quarterly payments for underfunded pension systems.
First, making pension payments on a quarterly basis, instead of at the end of the year, generates months of additional investment earnings for the pension funds throughout the year, which then reduces the amount of money that needs to be contributed in the future.
Making quarterly pension payments this year would have generated more than $100 million in additional investment income for our underfunded state pension systems. In future years, when the state finishes ramping up to make its full actuarially required contribution, quarterly payments will generate an average of $200 million a year in additional income.
Over a 30-year period, those additional investment earnings could save taxpayers $8 billion, while adding $4 billion to the pension system’s assets.
Second, requiring quarterly payments throughout the year ensures that payments get made — and that the State does not get to the end of the year without having put a dime into the pension system.
It is the failure of the state to make the required pension payments over the past 17 years under Democratic and Republican governors and Legislatures that created the massive hole in the state’s pension funds – a problem I warned about in 2005.
Teachers and state employees have never missed a pension payment. The New Jersey Education Association, the state AFL-CIO and the public employee unions have been calling for the enactment of quarterly pension payment legislation for years.
We know what making regular pension payments can do.
We already require our own county and municipal governments — whose pension funds are better-funded than the state’s — to make their full pension payments by April 30, four months into their calendar-year budgets, to maximize their investment income. That’s why their pension systems are more than 70 percent funded.
To provide the Treasury Department with flexibility, we agreed that quarterly payments would have to be made by the end of each quarter, rather than setting a specific date. However, we expect current and future treasurers to make the required pension payments as early in the quarter as possible, maximizing savings for future taxpayers.
Quarterly pension payments will be a significant step to restoring fiscal stability, cutting the unfunded liability, and cutting the amount of money taxpayers will have to pay into the pension system in the future.
It’s a win for the pension system, a win for state workers and teachers, and a win for the taxpayers. I look forward to the swift enactment of this bipartisan legislation.