December 5, 2022

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Report: NJ pension can’t survive without cuts to benefits, investment shift

Despite New Jersey’s recent good fortune with its public worker pension fund, the system is still vastly underfunded and cannot hope to dig itself out of its current financial mess without steep cuts to future benefits.

That’s according to a 35-page report titled “The Looming Tipping Point of New Jersey’s Pension System,” released by the right-leaning think tank Garden State Initiative on Dec. 14.

New Jersey’s three pension systems – one for public workers, one for teachers, and one for police officers and firefighters – have all seen a “precipitous financial decline than any other pension plan” in the nation, reads an Tuesday press release accompanying the report.

Those retirement and benefit plans boast higher costs than other states’ public worker retirement plans, while also ultimately being “more generous” than those of private sector workers.

Benefits should, according to the report, be tapered down, while employees should be made to contribute more to the plans.

Garden State Initiative President Regina Egea opens proceedings at the organization’s 2nd Annual Economic Policy Forum at the Hyatt Regency in New Brunswick on May 9, 2019. – GARDEN STATE INITIATIVE

“For years, our pension system has hovered like a dark cloud looming over our economy, escalating pressure for taxpayers, for financial analysts, and our public employees themselves, yet we continue to kick the can and make little to no progress implementing solutions,” reads a prepared statement from GSI president and former chief of staff  to Gov. Chris Christie, Regina Egea.

Chapter 78 restrictions, a proposal that Christie, a Republican, enacted, set higher contribution rates that school employees had to pay into their health care plans. Gov. Phil Murphy signed a measure in 2020 reversing that policy for many.

All told, the public worker pension, alone, is unfunded by at least $80 billion by some estimates, and was the source of a combined 11 credit downgrades for the state between 2010 and 2018, when Christie was in office. In 2011, he opted to suspend cost-of-living-adjustments banked into the pension plan, which was upheld in court in 2016.

In Trenton, a number of bills are moving through the Legislature during lame duck that would add state and local elected officials and other high-ranking executives to the state’s pension plans–laws excluding them were initially enacted years ago to shave off costs from the pension fund.

‘More substantive actions required’

The state’s plans “cannot invest their way out of their unfunded liabilities” due to historically low returns on investment, GSI said, despite recent luck for the fund.

As of late November, the total pension assets and contributions nearly topped $100 billion – according to the state Division of Investment – marking its highest total in nearly two decades.

Demonstrators gather in Trenton on June 13, 2019 to protest legislative proposals which would affect public worker pensions and health care plans.

Demonstrators gather in Trenton on June 13, 2019 to protest legislative proposals that would affect public worker pensions and health care plans. – DANIEL J. MUNOZ

Meanwhile, the record-high $6.9 billion pension contribution outlined in this year’s budget was a “welcome improvement,” the report said, but there’s little assurance that this practice can be kept up for years to come.

That contribution “was made possible via higher-than-expected tax revenues and federal financial assistance,” the report reads, and “many more years of substantial contributions will be needed to bring the state’s public sector retirement plans back to adequate funding.

“These future contributions will be difficult to sustain after 2021’s unprecedented federal financial aid expires without significantly more funding burden from taxpayers,” the report reads.

Andrew Biggs, a lead author for the report and senior fellow at the conservative Washington, D.C. think tank the American Enterprise Institute, warned that the pension costs could increasingly crowd out other expenses, something that lawmakers have also worried about for years.

“Often, the discussion about the New Jersey pension debacle focuses on the mistakes New Jersey has made in the past, and not enough on how it is curtailing our everyday services with our schools, municipal services and law enforcement,” Biggs said in a prepared statement.

Murphy, when asked at a Dec. 13 press briefing, assured that “we will make the full payment” each year. His office did not return requests for comment on this report.

“The state let the members down over a series of decades on both sides of the aisle,” the governor continued. “I’m of the mindset … let’s get up to full payment and keep it there and just pound away.”

To be sure, state lawmakers are proposing cuts to the pension system, but they would be levied against new public employees and those without a certain number of years under their belt. And the savings, while expected to be in the billions of dollars, would take years to materialize.

A path forward

One key measure, heavily backed by outgoing Senate President Stephen Sweeney, D-3rd District, under his “Path to Progress” reforms, would enact a hybrid pension plan where the first $40,000 of a new public worker’s retirement package would go toward a defined pension plan, while anything above that would go to a 401(k)-like retirement package.

Gov. Phil Murphy and Senate President Steve Sweeney participate in the Rabbinical College of America's State House Menorah Lighting Ceremony on Nov. 29, 2021.

Gov. Phil Murphy and Senate President Steve Sweeney participate in the Rabbinical College of America’s State House Menorah Lighting Ceremony on Nov. 29, 2021. – EDWIN J. TORRES / NJ GOVERNOR’S OFFICE

Egea said that the proposal was “very reasonable,” and would be a viable alternative to “taking away anyone’s earned retirement.”

“The lack of any substantive reforms for over 10 years has taken its toll and now more substantive actions are required,” she said in an email.

Other proposals call for reducing public worker health benefits – as was done with school employee health plans – and merging local government services, which proponents say will also cut costs.

Sweeney, who lost his reelection to Republican Ed Durr – a longtime truck driver – told reporters at a Nov. 30 event hosted by the New Jersey Business & Industry Association that he’d like to push the pension reform through before the new state Legislature is sworn into office and he has to vacate his seat.

“I want to get it done,” he told reporters at the NJBIA event. “I don’t know if we can get it done right now, but I can tell you we’re getting to a pretty good place where it’s going to be hard for people to argue against it.”

His office did not wish to comment on the report, while a spokesperson for Assembly Speaker Craig Coughlin, D-19th District, said he would review it.