NJASA

As several recent actions taken by the political establishments and the courts have shown, promises and laws affecting current and future retirees are made to be broken.  To put it bluntly, do not expect to receive anything that you thought was set in stone through laws, contracts or written or verbal agreements. Doubt it? Read on.

The first place to look for verification of this happening is in the political arena in New Jersey, where the Governor who signed legislation in which he was to increase funding for the State’s pension systems in return for greater contributions by all public employees is now saying that he was only kidding. He has reneged on his part of the agreement to increase funding over a seven-year period even though educators and other public employees have been living up to their responsibilities under the law by contributing more each paycheck for pension contributions and for health benefits since the passage of the law. 

In a recent court hearing on lawsuits filed by several employee organizations intended to force the Governor to contribute the money required by the 2011 law, attorneys for the State argued that the law is unconstitutional because it binds the Governor and the Legislature to make ever-increasing future payments to the systems “with or without a specific appropriation.” In other words, the Governor signed a bill he believed unconstitutional even though he trumpeted that it would save the pensions systems from disaster. (When I was a youngster, we used to cross our fingers behind our backs when we agreed to something that we never intended to carry out. Maybe the Governor did that with the hand he was not using to sign the bill into law.) The State’s lawyers have not stated whether the other parts of the law requiring employees to pay more for their benefits are constitutional or unconstitutional. If unconstitutional, would the added employee contributions for pension and other benefits be refunded and would pension contributions return to pre-2011 rates? It is expected that the judge hearing the suits will be rendering a decision soon. 

Another place to find a fractured promise is in a recent United States Supreme Court ruling which over-turned a lower court ruling that had found that the promise of no-cost retiree health benefits derived from a collective bargaining agreement in the private sector meant that the retirees would receive the benefits for their lifetimes. While the lower court opined that the agreement was binding, the Supreme Court said that the language did not specifically state they would be for lifetime. While those who retired under the agreement assumed that the benefits would be a no-cost retirement benefit, the Supreme Court said that the lower court “misapplied” contract law principles in reaching its decision by failing to note that “the traditional principle (in contract situations) is that courts should not construe ambiguous writings to create lifetime promises.” The Supreme Court sent the case back to the lower court for further study. Meanwhile, the retirees are paying for their health benefits. 

Most recently, the Federal budget for the next fiscal year proposed by the President calls for cuts in Medicare through lower payments to health care providers and drug companies, higher Medicare  premiums for wealthier seniors and a change in the way the Consumer Price Index (CPI) is calculated. All three changes are intended to save billions of dollars over the next ten years; all three changes break the implict promises made to retirees that their needs would not be sacrificed for budgetary purposes. 

In taking a closer look at each of these proposed changes, it is easy to see that retirees would be faced with economic and health decisions that could seriously affect their quality of life. Changes in Medicare, particularly lower payments to providers might encourage many more doctors to stop accepting Medicare Part B, resulting in higher medical bills for many retirees and fewer doctors for them to see. Cuts in payments for drugs will just exacerbate the problem of affordability for retirees, many of whom today are reluctant to purchase high costing drugs, particularly when there is no generic equivalent. Changes in the calculation of the CPI would affect the amount of annual increases that Social Security recipients obtain each year, which aid them in keeping up with inflation. (It should be noted that in some years, the CPI adjustment is eaten up by the increase in the cost of Medicare Part B.)

Not included in the above examples, all of which are current actions, is the State of New Jersey’s tacit elimination of the promised pension cost-of-living benefit in 2011. While the benefit has been “suspended,” it will be many, many years before it is restored. This one action makes other broken promises pale in comparison because it freezes purchasing power in an era of rising costs and makes retirees question the value of any promised benefit. (The cost-of-living feature has been a part of the State’s public retirement systems since 1959.)