It’s been more than a month since the New Jersey Supreme Court issued a major ruling on public-employee pension funding, finding that the state doesn’t have to follow a 2011 law that promised increased state pension contributions as a contractual right of workers. And though the high court said the payments aren’t required, the pension system’s huge unfunded liability is still a big problem that actuaries say is only getting worse.
But so far this summer, though the state’s political leaders have been searching for answers, they’ve had little success agreeing on a solution.
On one side of the debate is Gov. Chris Christie, a second-term Republican, and others who believe the only way to address the health of a pension system that is $40 billion in debt thanks to roughly two decades of underfunding is to enact the sweeping changes recommended earlier this year by a nonpartisan panel of benefits experts. Those changes included freezing the current pension funds and moving employees into a new retirement system with features of a 401(k).
But Democrats who control the Legislature, led by Senate President Stephen Sweeney (D-Gloucester), and public-employee labor union leaders have largely been holding firm to their position that the state doesn’t need to enact more reform, but simply abide by the pension-funding commitments made in the 2011 law known as Chapter 78, even if it means raising taxes to bring in more revenue.
At stake in the ongoing debate are the retirements of an estimated 770,000 current and retired public workers who are relying on the $80 billion pension system to be there when their careers end. And for taxpayers, there are also enormous consequences because the court ruling reaffirmed that employees still have a right to receive their pensions, meaning the annual payouts will have to come out of the state budget if the pension system ultimately goes broke.
There are also enormous political implications in play, including for Christie, who is now running for president after trying to make pension reform a signature issue since taking office in early 2010. And there are political considerations for lawmakers to weigh this year with the full state Assembly up for grabs in November, and with leaders like Sweeney already among those jockeying to become the next governor when Christie’s term is up in early 2018.
Waiting to enact more reform on top of the 2011 law — which also required workers to pay more toward their pensions in addition to increasing state contributions — would be a mistake, explained Tom Byrne, a member of the benefits-study commission, during an NJTV interview late last week. The state, he said, won’t be able to raise enough revenue to come up with the money needed to cover both what’s owed to retirees on an annual basis and still pay off the pension system’s long-term debt.
“We have about $80 billion in the state pension fund and we need another $40 (billion) in order to meet the needs of retirees down the road,” said Byrne, who has served as a state Democratic Party chairman and is the son of former Gov. Brendan Byrne.
“We pay out about $10 billion a year from the state pension fund, and it already has a negative cash flow,” said Byrne, who is also the chair of the State Investment Council, which oversees the management of the pension system. “And the actuaries say that that money will disappear within a decade.”
“In the context of a $33 billion state budget, I just don’t see how $10 billion of that is going to be devoted to pensions,” he said. “It’s not realistic.”
And while Sweeney has taken a firm stance that the seven-year ramp up to the full payments required by actuaries to restore the health of the pension system — which was the schedule spelled out in Chapter 78 — should be followed even if the Supreme Court didn’t require it, Assembly Speaker Vince Prieto (D-Hudson) has been more open to the idea of lengthening the payment schedule.
[related]Prieto gathered union leaders together in Secaucus last week to talk about pension funding, with NJ Advance Media reporting that sources said Prieto has floated the idea of taking another five years to get to the full payment required by actuaries.
In a statement provided to NJ Spotlight, Prieto said only that he and the union leaders “are exploring options and weighing alternatives” at this point. The meeting, he said, “was part of an ongoing discussion I’ve been having on how best to ensure the health of the pension system for our public workers while protecting taxpayers.”
Among those with the most at stake in the pension-funding debate are teachers, a point driven home late last year with the release of new financial projections that indicated the pension fund could be depleted by 2027 without more robust state contributions. And New Jersey Education Association leaders initially entertained the work of the benefits commission earlier this year before ultimately rejecting its recommendations.
Steve Wollmer, a spokesman for the NJEA, said his union is among those now open to the discussions that Prieto is leading.
“The Supreme Court ruling did not resolve the problem, and letting the pension fund crash and burn is an unthinkable outcome,” Wollmer said. “Therefore, NJEA welcomes a robust discussion of how to fund the pension system to ensure its long-term viability.”
In addition to freezing the pension system, the commission Byrne sat on also recommended forcing employees at all levels of government to accept less-generous health coverage and using the savings to help pay down the pension system’s heavy debt. Local school districts would also pick up the cost of teacher retirements, which has long been a state expense, under the commission’s proposal.
In addition to seeking the new reforms, Christie earlier this year floated his own pension-payment schedule, suggesting the full ramp up should be spread over 10 years. The new budget Christie signed into law in late June included $1.3 billion for the pension system, not the full $3.1 billion that would have been required in the fifth year of Chapter 78’s seven-year ramp up.
That $1.3 billion contribution represents 3/10ths of the more than $4 billion that actuaries say the state should be paying on an annual basis.
Christie, in his veto message said the $1.3 billion contribution would still be the largest in state history and would establish “a strong foundation for moving forward on a fiscally responsible path.” But others, including Sweeney, have raised concerns that pushing off full payment only leaves more of the burden on future generations.
An NJ Spotlight analysis of both the seven- and 10-year ramp up schedules found the extra three years sought by Christie would add $14.35 billion in liabilities over the next 30 years.