NEW JERSEY PENSION UPDATE
(Prepared by Peter Guzzo, NJ State FOP Lobbyist)
On June 9th., the New Jersey State Supreme Court ruled in a 5-2 decision that although the Governor signed a law in 2011 (known as Chapter 78) to make the public employee’s pension system whole in seven years, constitutionally he cannot be forced to make full payments into the system as the public unions argued in Court. The Governor originally supported the law he signed but then said, on second thought, I changed my mind, my law is unconstitutional and I do not have to fully fund the pension system. In other words, he was only for it before he was against it!
This leaves approximately 800,000 active and retired public employees – including members of the police and firefighters pension system (PFRS)–wondering if there will be sufficient funds in the pension system to keep it solvent and asking how did New Jersey’s public pension system became so dire? Currently, the public pension system faces anywhere from $40 to $80 billion in unfunded liabilities. Although the PFRS is healthier than the other four public employee pension systems, its fiscal health needs to be improved upon.
Since 1996 Governors from both parties underfunded the pension system making payments well under the amounts called for by actuaries. In fact, from 2001 to 2004 the State skipped payments altogether. At the same time, public employees continued making their contributions to the pension systems. Then, in 2011, the Governor signed into law Chapter 78 which raised the pension contribution rates for public employees from 5.5% to 7.5% and from 8.5% to 10 % for police and firefighters, suspended cost-of-living increases for retirees and raised the retirement age.
Ironically, while the State Supreme Court ruled Governor Christie does not have to obey his own law and fully fund the pension system, public employees must still comply with the provisions that impact them.
According to analysts who have studied the public pension system, to overcome an unfunded liability of $60 billion (to take the difference between $40 and $80 billion) $3.6 billion would need to be contributed to the system every year for the next 30 years at a return of between 4% and 7.9% interest annually. This would be needed to cover an annual pension payout of approximately $9 billion.
And it should be noted that the focus on the unfunded pension liability does not address the cost of rising public employee health benefits which was previously changed in 2011 with the four-year phase in of increased employee health premium contributions.
Obviously, the need to fund the pension system and the health benefits of public employees will continue to be on the front burner of the Governor and members of the New Jersey State Senate and General Assembly. And the prime focus of the leadership of the New Jersey State FOP Leadership and its lobbying efforts will be to protect the rights and benefits of members of the PFRS who have lived up to their obligation to contribute their fair share in pension and health benefit contributions.