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Analysis: Christie, Sweeney, and the Limits of Pension Reform

As Christie noted, “an astounding 78 percent of this year’s $2.25 billion payment goes to making up for the legacy of years of irresponsibility from governors and legislatures who paid little or nothing into the system.”

He gets no argument on that point from Sweeney, the Ironworkers Union leader who was a back-bench two-term senator when he was picketed by the public employee unions for calling for pension changes that would require government workers to pay more for their pensions back in 2005, four years before Christie ran for governor.

What Sweeney argues with is Christie’s evident effort to back out of their public promise to bear the burden of paying for annual $600 million to $700 million increases in pension payments in the state budget to put the pension system on a sound footing – especially after they required public employees to pay more toward their pensions, to put off retirement until age 65, and to give up cost-of-living increases until their pension plans are on a solid ground.

Protecting Pensions

Sweeney, other Democratic legislative leaders, and union officials agree that the 2011 pension overhaul is sufficient to guarantee the health of the pension system for future retirees, and that the state should honor its commitment. “We’re not breaking the commitment,” Sweeney said emphatically. “If we stay the course, the pension system will be fine -- it’s not going to bankrupt us.”

Rousseau said the seven-year phase-in to full funding of pension costs, while difficult for Christie’s second-term budget-makers, will stabilize the pension system. Once the build-up to full funding is completed in the Fiscal Year 2018 budget, pension payments would rise only incrementally in future years similar to other costs.

“You have to wonder how serious the governor is about this. You listen to his budget speech, and ‘There is no there there,’” Rousseau said, quoting Gertrude Stein. “He didn’t say anything about what he wanted to do.” Christie faces significant policy, legal, and political challenges in any effort to overhaul New Jersey’s pension laws.

First, New Jersey’s pension laws already have been overhauled three times in the past eight years, and both the Democratic-controlled Legislature and the public employee unions feel strongly that is enough.

In a preview of the approach that Christie and Sweeney would take four years later, Corzine pushed through legislation as part of his first budget that raised the retirement age from 55 to 60, increased employee pension contributions from 5.0 percent to 5.5 percent of salary, and imposed other changes that altogether were projected to save almost $3.6 billion over the next 15 years.

At the same time, Corzine made a $1.02 billion contribution to the state pension system in FY2007 that was more than his four predecessors had contributed in the previous 10 years combined. He followed up with a $1.05 billion pension payment the following year before the Great Recession wiped out his budget in the year after that.

Nevertheless, Corzine pushed through a second pension law in FY2009 at the behest of Sweeney and Senate Majority Leader Barbara Buono (D-Middlesex) that further hiked the retirement age to 62 and limited the number of part-time employees in the pension system, saving $120 million more over a 13-year period.

Sweeney’s 2011 pension overhaul, which he passed with Christie’s support, further raised the retirement age to 65, reduced pensions by 3 percent a year for those taking early retirement, increased pension contributions from 8.5 percent to 10 percent of salary for police and firefighters (who are allowed to retire after 20 years) and from 5.5 percent to 6.5 percent for teachers and other non-uniformed government workers. These reforms combined were projected to save $48 billion over the next three decades.

However, the biggest chunk of the pension savings -- about $74 billion over 30 years -- was to come from the elimination of annual cost-of-living adjustments for the 300,000 retired teachers, police, firefighters, and other state and local government workers in the six state pension systems until those funds were solvent.

Sweeney and Assembly Speaker Vincent Prieto (D-Hudson) both emphasized that they believed public employees were paying their fair share toward their retirements -- a point that Christie disputed in responding to a question at his Long Hill town hall meeting. “When defined-benefit plans started, people’s life spans were significantly shorter,” Christie noted. “What we have not done is make both sides put in enough to match that different life span.”

Rolling Back Benefits

Second, while Christie might want to roll back benefits for current employees and retirees, he would undoubtedly face an immediate legal challenge based on a law passed by a previous Republican governor and GOP-controlled Legislature.

While New Jersey’s state constitution does not provide protections to pension benefits similar to New York and some other states, the Communications Workers of America, the state government’s largest union, traded their support for a controversial pension-refinancing scheme in 1997 for Republican Gov. Christine Todd Whitman’s support for a law that expressly "confers on a public employee a non-forfeitable right to pension benefits established by law after the employee has served for five years."

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