NJ public retirees can recoup career of pension contributions in 4 years
Traditional pensions for public workers could be up for debate this summer, as a legislative working group commissioned by Senate President Steve Sweeney may recommend switching to 401(k)-style benefits.
Public employees in New Jersey pay more toward their pensions than ever before.
But even after contributing to the pension over the entirety of their career, a state worker can recoup 30 years of paycheck deductions in just three to four years, a New Jersey 101.5 analysis of pension data finds.
Presuming that the employee retires at age 65, then lives until age 80, that’s well over a decade of support from other sources of money – other workers’ contributions, payments from public employers and investment earnings.
Rex Reid, legislative representative for American Federation of State, County and Municipal Employees Council 63, said any such math measuring benefits against contributions also needs to consider the part of the agreement where things often wind up falling short: Making sure the state, county and local governments pay in what’s required.
“They’re supposed to put in a share of the pension, also. That’s the agreement,” Reid said. “The employee always makes his contribution. And the municipality, the county and the state over the years have found reasons why not to make their share. And that’s why there’s a problem with the pension.”
The state plans to put $3.2 billion into the pension fund in fiscal 2019, including $1 billion in New Jersey Lottery profits now dedicated to the pension funds. That is 60 percent of what actuaries say should be put in to support a system that’s $60 billion underfunded. The state hasn’t contributed its full payment in close to 20 years.
Within four years, that contribution is scheduled to rise to more than $6.6 billion – then drift a little higher but generally stay at that level through mid-century.
“The defined benefit works if everybody does what they’re supposed to do – put their share in,” Reid said.
Assemblyman John DiMaio, R-Warren, disagrees. He said people working in the private sector already live with the changes to retirement and health benefits that he says the Legislature needs to find the political will to enact.
“You can’t sustain a defined benefit pension plan if you don’t have a tremendously growing workforce. You just can’t,” DiMaio said.
Return on investment
It’s not easy to present the numbers in a way that represents a typical retiree.
There are multiple retirement systems, which have different rules and contribution rates, plus state and local versions for most funds. Year-by-year salaries depend on individual collective bargaining agreements, with different patterns for raises and longevity "step" increments. The contribution rates have increased often in the last decade, so workers’ start dates alter how much they may have put in over the course of their career.
For conversation sake, here are three examples – all based on 2 percent annual increases in salary and following the contribution rates that will be in effect July 1.
Public workers and teachers
A state worker enrolled in the Public Employees’ Retirement System who starts at a $40,000 salary and retires 30 years later making around $71,000 would pay $121,700 into the pension fund over her career. Her pension would be around $34,150 a year for the rest of her life.
A teacher who starts at a salary of $50,000 and retires 30 years later making almost $88,800 would pay $152,130 into the Teachers’ Pension and Annuity Fund over his career. His pension would come to almost $42,700 a year for the rest of his life.
In both cases, because PERS and TPAF have similar formulas, the pension payments would exceed the workers’ career contributions after three years and seven months of pension checks.
The math works slightly differently for a police officer. A cop who starts at a $55,000 salary and retires 25 years later being paid almost $88,500 would contribute about $176,200 into the Police and Firemen’s Retirement System. His annual pension would be $43,370 – meaning it would take just over four years to recoup the payments into the system.
Shift to 401(k)?
Assemblyman Michael Patrick Carroll, R-Morris, said those numbers underscore that “there’s no doubt we have to change it.”
“That’s why a defined contribution plan is always a better idea,” Carroll said. “We should have gone to 401(k)s 20 years ago and we wouldn’t be having this discussion.”
“We’re still going to have to do something like that,” he said. “And it’s going to be painful because there’s no way to keep the promises that were made.”
Sweeney has said for months that the Economic and Fiscal Policy Working Group that has been meeting since February will have far-reaching recommendations coming out this summer. Now those concepts are beginning to creep into the budget impasse rhetoric.
Sweeney said he is frustrated that Gov. Phil Murphy’s budget increases spending without making any pension and health benefits reforms.
“He knows what’s wrong with this state and he knows how to fix it,” Sweeney said. “He wrote a report under Gov. (Richard) Codey that I actually helped implement some of the pieces of that. He’s not talking about fixing one thing.”
Murphy said talk of larger structural reforms are to come in the months ahead but that for now he wants a balanced fiscal 2019 budget sustained by permanent tax hikes.
“Can we run government more leanly? I certainly hope so, and we’re going to die trying,” Murphy said. “Can we break the back of property taxes? We’ve got a whole bunch of things we’re pursuing to do just that.”
Assembly Minority Leader Jon Bramnick, R-Union, said approval of money-saving changes is still possible in the immediate days ahead, as Republicans would support the ideas put forward by a study commission that then-Gov. Chris Christie had convened.
“It’s realistic if they put it up. It’s realistic for us,” Bramnick said. “I’m not sure it’s realistic for the leadership in the Legislature or this governor. I don’t think he would touch the pensions.”
AFSCME’s Reid said he will “fight like hell” to make sure public workers aren’t shifted to a 401(k)-style retirement system. He said any changes are always followed by backtracking by the state — and that it’s happening again right now, in bill S2621/A4119.
“Last budget, they put the lottery into the pension. This budget, they want to reduce the amount of the contribution from the lottery to the pension fund by 3 percent,” Reid said. “You’re talking about $100 million. And then they’ll say, ‘Oh, well, it’s not working, and we need to do away with the pensions.’ It’s crazy. It only doesn’t work because they never fund it.”