Would You Take a Position in a New Jersey Public School?
Part 1 of a Series
During my many years of providing service to the NJASA, I have received inquiries about retirement and health benefits from out-of-state educators contemplating superintendent positions in New Jersey. For many, this information is the key factor, after their educational interests, in whether to continue to pursue New Jersey positions.
Until July 2007, the responses to those questions were greeted in a positive manner because our pension system, in particular, was very attractive to educators considering moves to New Jersey. The system provided a pension to anyone reaching 60 years of age regardless of years of service, excellent early retirement features, a formula that provided a lifetime pension based on years of credit over 55 times the average of the highest three years of salary, and a cost-of-living benefit after two years that provided 60% of the inflation that occurred after retirement. The system was fairly well-funded, although not as well-funded as it had been before 2000 when a market crash had severely hurt its assets and funding gimmicks, which later proved disastrous, began to be used to fund the system. Still, New Jersey retirement benefits ranked among the best in the nation.
What was most important was that the benefits in system, which had been revamped in 1955 and improved a number of times in the intervening years, were the same for new educators as they were for veteran educators when a new entrant joined. All changes after an educator joined affected old and new educators in exactly the same way.
Thus, all the educators who entered the system prior to July 1, 2007 have the same benefits that were in effect for years and will retire with superior benefits.
But in 2007 and for four straight years, a series of laws were enacted that completely changed the retirement picture in the state. From a system that used the same benefit structure for every participant, the system fractured into a program that split its members into five different levels (called Tiers). Each Tier has a different structure of benefits based on the entry date of the participant. Thus, the retirement benefits which one educator has to look forward to may be completely different from what a fellow educator in the next room or next school district has. Over four years, the laws reduced or changed every facet of the system that had existed for over 50 years. They completely destroyed the formula, changing the denominator from 55 to 60; they froze the final average salary calculation to coincide with the maximum contribution base of Social Security and introduced a Defined Contribution Plan* for that salary that exceeds the Social Security base; they changed the normal retirement date (the age at which any participant could retire regardless of years of credit) from age 60 to age 62 (Tier 3) and then 65 (Tier 5); they virtually eliminated the early retirement benefit; they suspended the cost-of-living benefit for all retirees, regardless of retirement tier so that no cost-of-living increase has been provided to any retiree since 2011. They increased employee contributions from 5.5 % to 7.5%. The picture is completely different than it was a dozen years ago.
Further threatening the picture is a report from a commission appointed by former Governor Chris Christie that was recently released which suggested that the current system be frozen and all future retirement benefits be earned through a Defined Contribution Plan.* (No action has been taken on this report.)
* There are only two types of retirement plans: a Defined Benefit Plan, which is a pension [monthly and annual payments] based on a formula to calculate the payment amount [like years of service times salary divided by 55]. Under this type of plan, a retiree is guaranteed a lifetime pension. (The current TPAF and PERS plans are Defined Benefit Plans.) A Defined Contribution Plan is a retirement plan in which the employee contributes a percentage of salary into basically a savings account, where it is invested for the employee. In most plans, the employer also contributes and the combined balance grows until the employee retires. The retirement amount is derived from the size of the account when the employee retires. There is no guarantee of anything to the retiree.
Now that the pension system has been eviscerated, there is a push to decrease the value of the health benefits enjoyed by educators. According to critics, the health benefits fall under the category of “platinum” care, which is the best care available under health insurance plans. Under the Affordable Care Act, employers providing Platinum care plans will be faced with a 40% excise tax soon and supposedly New Jersey could be hit with that. Here, again, newspaper reports are saying that there are discussions about reducing the “value” of the health plans to a lesser plan.
One positive that has occurred in recent years has been an attempt by the State to increase funding for the system. In the early years of 2000, the State had fallen far behind the funding requirements necessary to put the systems on a reasonable funding basis. For several years the State did not contribute any funding, which created large unfunded liabilities. In the past few years, a surge of funding by the State has stabilized the picture to some degree, but, according to plan actuaries and rating firms, the plans are still significantly underfunded. Hence, the suggestion to consider a change to a Defined Contribution Plan.
Amid all this upset, the people who are responsible for education in our schools must continue to function. They have a responsibility to the students in their care. However, they also must be aware of their livelihoods and their welfare and they must be alert to what is happening to their hard earned benefits.
I still get calls. But the reactions to the description of the current Tier 5 benefits and to the health issues are not nearly as positive as it used to be to Tier 1 benefits.
(In the next and future Financial Corners, I will continue to explore the five tiers that now constitute the pension system.)