Q & A on New Jersey’s public employee pensions
TRENTON (AP) — Gov. Chris Christie says he will unveil a plan this summer to rein in public workers’ pension costs, which he says are taking up too much taxpayer money.
Even ahead of his announcement, the political debate has ramped up. Christie’s summertime town-hall style meetings are called “No Pain, No Gain” and are addressing pensions. He even advertised the talks with a movie trailer-style video that his opponents quickly ridiculed. Public workers protested the first summer meeting last week and expect to keep at it.
Here is a look at problems surrounding the state public employee pensions:
Q: What’s the issue?
The cost to the state government has been rising. Christie says money for pensions, health insurance and debt service crowd out the possibility of more spending on education or on granting tax cuts. He also warns that the pension system could go bankrupt without major changes. He says pension costs are a major reason Detroit entered bankruptcy protection last year. City workers and retirees there have agreed to reduced pension payments as part of the solution.
Q: How did this happen in New Jersey?
Beginning in the 1990s, governors of both parties skipped or skimped on pension contributions to fund other priorities. Christie promised to change that. In deals in 2010 and 2011, he agreed to fully fund the state’s share of the pensions for current employees and over seven years to make up for unfunded liabilities caused by missed or reduced payments.
Q: Just how big is the pension system, and how deep are its problems?
From July 1, 2012, through June 30, 2013, the system paid out $8.8 billion to 293,000 retirees — an average of about $30,000 each. Over that period, about 500,000 public employees paid into the system. At the end of that period, the funds held $82 billion and were considered 65 percent funded. They had an accrued unfunded liability of $47 billion. Christie’s office and the state treasurer’s office didn’t respond to queries last week about how long the funds could remain viable without major changes.
Q: Did workers have to sacrifice under the earlier changes?
Yes. Government workers saw their contributions rise and their retirement age increase. Current retirees also had cost-of-living increases suspended.
Q: Has this helped fix the problem?
Unions and most Democratic lawmakers have been satisfied. But this year, Christie laid the groundwork for further changes, saying the cost to taxpayers for pensions is too much. Still, he initially planned to make the state’s full $2.25 billion payment to pension plans due in the fiscal year that began July 1.
But in May, after a surprise revenue shortfall, he changed course in the name of balancing the state budget. He used his executive powers to skip part of the payment in June and reduced the payment for fiscal 2015. He says he is paying the full contribution for current employees but skipping the catch-up payments. Pension payments to retirees weren’t changed because of the smaller payment into the fund.
Q: Is that legal?
A judge found that the state has a legal obligation to make its previously promised contributions but that the budget crunch at the end of fiscal 2014 was a valid reason not to pay the full amount now. Unions for public workers are planning further litigation to try to force Christie to make a full payment in this budget year.
Q: What changes does Christie want to make?
He says he intends to offer a proposal by the end of August. He is considering requiring employees to pay more, raising the retirement age and cutting benefits. He said during a town hall meeting in Long Beach Township last week that he doesn’t intend to reduce the benefits of current retirees. But making changes would require approval from the Legislature.
Q: What about switching from a defined benefit program to a 401(k)-style defined contribution plan to save money?
Christie could propose doing something like that. But critics say that could hurt efforts to make good on commitments to those who have retired or will retire soon because there would not be money from active employees entering the pension system.
Q: How will the Legislature receive whatever Christie proposes?
Most likely not warmly. Senate President Steve Sweeney isn’t warm to the idea of pension plan changes. “We fixed it in 2011,” he said last week. Democratic lawmakers and union leaders say Christie lost some credibility on the issue by reducing payments. “Make your payments as you agreed and the law requires, and then we can have a talk,” said Hetty Rosenstein, New Jersey director of the Communication Workers of America, the largest union of New Jersey state government employees.
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