NJASA

Pension Contribution Details Released;

Governor Continues to Threaten

Here we go again - Part 2!

The continuing crisis over the current budget and next year’s proposed budget continues to simmer. In light of the shortfall in tax revenue in the fourth quarter of the year, the Governor has proposed to cut contributions to the State pension funds by $2.4 billion dollars - $900 million from this year’s contribution and $1.5 billion from next year’s budget. (These figures were not known at the time my last article was written and they are far greater than were projected at that time.) This, despite his signing legislation in 2010 that provides for the State to increase its contribution each year until the full actuarial calculated amount was to be contributed in the seventh year following the passage of the law.

Several organizations have already filed lawsuits challenging the Governor’s proposed action. The suits argue that the law requires the State to make the contributions, and that failure to do so is a violation of the statute that this Governor signed several years ago. They point out that the members of the system have increased their contributions (and will continue to increase their contributions through 2018) as part of legislation tied to the 2010 law. While not part of the same law, the increase in members’ contributions was seen as a way to “partner” with the State to improve the solvency of the retirement system.

The Governor has also threatened to find a way to reduce pension and health benefits. His State Treasurer floated an idea before the Assembly budget committee to introduce a “hybrid” pension system similar to one in Rhode Island. The system that was mentioned was a combination of a defined benefit and defined contribution plan. How it would work was not disclosed, nor how it would affect the fiscal condition of the State. Any introduction of a different combination of pension benefits would still require the State to fund the current pension system, a requirement of the Federal law that gives the New Jersey systems a qualified status. So any changes would leave New Jersey still paying for the current system and for any new system, hardly the way to decrease retirement contributions.

Speaking about changes to the retirement benefits, it should be emphasized that pension and health changes require legislation. On his own, the Governor cannot implement any changes without the Legislature presenting him with bills that have been passed by both house of the Legislature. Current statements by members of the majority party in both houses of the Legislature state that the reforms enacted in 2011 were sufficient to bring solvency back to the systems as long as the State honored its part of increasing funding. There does not seem to be a movement to bring further reform.

It must be stressed THAT ONLY LEGISLATION PASSED BY BOTH THE SENATE AND THE ASSEMBLY CAN ALTER BENEFITS. THE GOVERNOR, ON HIS OWN, CANNOT REDUCE BENEFITS! FURTHER, FEDERAL, STATE AND CONTRACT LAWS DO NOT PERMIT THE REDUCTION OF ALREADY EARNED BENEFITS. WHAT YOU ALREADY HAVE EARNED IS YOURS AND ARE INVIOLATE. Any future changes would have to be prospective, in the same manner as the tiering of the last seven years; they cannot be retrospective.

This is not to say that there may not be more threats from the Governor. But, as long as no legislation is passed, he can do little to affect the benefits.

Keep tuned for further developments.