• Main
  • Mort Reinhart
  • Constitutional Amendment Sought to
    Require Pension Funding

    Chapter 78 of the Laws of 2011 is in the News Again! 

    You remember Chapter 78. It was the law that Governor Chris Christie said would “save” the pension system because benefits would be cut, educators and other public workers would pay more for their pension benefits and would be required to contribute toward their health benefits, and the State of New Jersey would increase its annual contribution to the pension system so that the funds would eventually be fully funded. Just looking at the sweep of the changes contained in that law makes one take a very deep breath.

    As we now know, all the changes in the law that referred to workers’ benefits were instituted, while the requirements that the State increase its contributions to the system have only been partially realized.The Governor has only made a full payment required by the law one year; on others he has reduced the payment amount considerably and his budget for next year provides slightly more than one-third of what he agreed to pay under Chapter 78. In fact, the same Governor who signed the law and extolled its virtues challenged the sections mandating the increased contributions by the State in court claiming that they were unconstitutional. And he was successful, with the New Jersey Supreme Court saying that the New Jersey Constitution did not permit the State to be bound with such an obligation. He has based his smaller contributions on this decision.

    Employees, on the other hand, have met their responsibilities fully. 

    Let’s review the major facets of Chapter 78, as they applied to educators and other public workers:

    # All future cost-of-living increases were suspended until pension funds are 80% funded;

    # Active workers are contributing more each year to their pension plans. The rate of contribution, which had been 5.5% of salary, was increased immediately to 6.5% and will keep rising every year by 1/7% until it reaches 7.5% in 2019;

    # Every covered employee is required to contribute a percentage of the cost of health insurance. The contribution is based on the income level of the employee and ranges from 3.5% to 35% of the health insurance premium; 

    # Prior to the law, everyone who retired with 25 years of credited service received free post-retirement medical benefits. After the passage of the law, those who did  not have 20 years of credit on its date of enactment and retire eventually with 25 years will pay a portion of their health benefits. (That portion will be based on the size of the pension, ranging from 5% for retirees with small pensions to 35% for retirees with large pensions.)

    All of these portions of Chapter 78 are currently in effect. 

    So what is happening now that brings Chapter 78 to the forefront?  

    It is the introduction of a resolution in the State Senate by Senate President Steve Sweeney that calls for a constitutional amendment requiring the State (1) to fund the pension systems by making the required contributions and (2) to make the payments on a quarterly basis. A constitutional amendment requiring payment would satisfy the issue raised in the Supreme Court decision, which allowed Governor Christie to renege on his commitment under Chapter 78. It would prevent any future governor from failing to fully fund the retirement system.

    In order for the proposed amendment to be placed on the ballot, both the State Senate and Assembly must either approve it with a one-time three-fifths majority vote or with two simple majority votes in two consecutive legislative sessions. (This would mean that it is likely to be on the 2017 ballot, the same ballot that will determine the next governor.) The placing of a constitutional amendment on the ballot is the sole province of the legislature. It does not require gubernatorial approval, nor does the governor have veto power over it. 

    Stay tuned.